Public

Statement of Accounts 2019-20

Peter Handford BA(Hons) PGCert FCPFA Director of Finance & ICT

CONTENTS

PAGE Narrative Report 2 Statement of Responsibilities for the Statement of Accounts 25 Comprehensive Income and Expenditure Statement 26 Balance Sheet 27 Cash Flow Statement 28 Movement in Reserves Statement 29 Notes to the Core Financial Statements 30 Accounting Policies 114 Auditor’s Opinion - Derbyshire County Council Accounts 141 Pension Fund Accounts 145 Auditor’s Opinion - Pension Fund Accounts 202 Glossary of Terms 205 Contact Information 221 Annual Governance Statement 222

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Introduction

This Statement of Accounts presents the overall financial position of the Council for the year ended 31 March 2020. It has been produced in compliance with the Chartered Institute of Public Finance and Accountancy (CIPFA) Code of Practice on Local Authority Accounting (the Code), based on International Financial Reporting Standards (IFRS). IFRS are made up of a combination of many individual accounting standards.

This document also includes information relating to the Derbyshire Pension Fund, which the Council administers on behalf of its own staff, other local authorities and other admitted bodies.

Basis of Preparation and Presentation

W hen preparing the accounts, an authority need not comply with the Code, as to both disclosure and accounting principles, if the information is not material to the “true and fair” view of the financial position, financial performance and cash flows of the authority and to the understanding of users.

Information is material if omitting it, or misstating it, could influence decisions that users make on the basis of financial information about a specific authority.

The Accounting Policies of the Council have been prepared in accordance with IFRS, as adopted by the Code. W here there is no specific guidance in the Code, the Council has developed its own Accounting Policies, which are aimed at creating information which is relevant to the decision-making needs of users and reliable, in that the financial statements:

• represent fairly the financial position, financial performance and cash flows of the entity; • reflect the economic substance of transactions, other events and conditions and not merely the legal form; • are neutral i.e. free from bias; • are prudent; and • are complete in all material respects.

The Council’s Accounting Policies outline how the Council should account for all income, expenditure, assets and liabilities held and incurred during the 2019-20 financial year.

The Accounting Policies of the Council are updated annually to reflect any changes in IFRS, including changes in International Public Sector Accounting Standards (IPSAS), HM Treasury guidance, CIPFA guidance or any other change in statute, guidance or framework impacting on the Council’s accounts. The Accounting Policies of the Council, as far as possible, have been developed to ensure that the accounts of the Council are understandable, relevant, free from material error or misstatement, reliable and comparable.

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Explanation of the Accounting Statements which follow

• Comprehensive Income and Expenditure Statement (CIES) - This shows the cost of providing services in accordance with generally accepted accounting practices. • Balance Sheet (BS) - This shows the value of all assets and liabilities. Reserves are matched against net assets and liabilities. • Cash Flow Statement (CFS) – This statement shows the changes in cash and cash equivalents of the Council. • Movement in Reserves (MiRS) – This shows the movement on the different reserves held, analysed into ‘usable reserves’ (i.e. those that can be applied to fund expenditure) and ‘unusable’ reserves. • Notes to the Accounts – Not a statement, however they provide supplementary information.

Performance

Local authorities can present the CIES based on how an authority is organised and funded. The Council has presented its CIES on the basis of how it reports its management accounts during the financial year, which is by Cabinet Member Portfolio.

The Council is structured into four departments but reports through seven Cabinet Member Portfolios. These portfolios are Adult Care, Corporate Services, Clean Growth and Regeneration, Health and Communities, Highways, Transport and Infrastructure, Strategic Leadership, Culture and Tourism and Young People.

Revenue Expenditure

The Council set its net budget requirement for 2019-20 on 6 February 2019 and originally planned to spend £519.532m, with funding coming in the form of Government non-ring-fenced grants of £161.444m, Council Tax of £329.430m, business rates collected locally of £19.195m and the use of Earmarked Reserves of £9.463m.

In 2019-20 the Council has spent £539.583m, against a final net budget of £543.440m. The increase in net budget is because of additional net transfers from Earmarked and General Reserves of £10m, additional grant income of £12m (including Business Rates Relief Grant £6.357m, W inter Pressures Grant £3.627m and Independent Living Fund Grant £2.534m) and £2m additional business rates income.

The table below summarises the Council’s outturn position, highlighting the Cabinet Member Portfolio net overspend and Corporate net underspend. The overall Council underspend for the year is £3.857m. Spending on schools is funded by the Dedicated Schools Grant (DSG), from Government. The Council received £359.020m in 2019-20. Note 38 sets out the DSG grant in more detail. The Council also has responsibility for Public Health funding. A total of £39.477m was received in 2019-20 in the form of a ring-fenced grant from Government to pay for Public Health services. There was an overspend against the balance of the grant of £0.022m. The outturn table shows the positions net of the impact of these grants, other ring-fenced grants and income from other third parties and their associated spend.

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Final Net Budget Actual Outturn £m £m £m Controllable: Adult Care 246.730 246.730 0.000 Corporate Services (formerly Council Services) 45.136 43.439 (1.697) Clean Growth and Regeneration (formerly Economic Development and Regeneration) 5.603 5.638 0.035 Health and Communities 4.433 4.171 (0.262) Highways, Transport and Infrastructure 79.888 78.069 (1.819) Strategic Leadership, Culture and Tourism 13.175 13.153 (0.022) Young People 110.700 117.555 6.855 Portfolio Outturn 505.665 508.755 3.090 Risk Management 6.155 0.000 (6.155) Debt Charges 28.833 29.327 0.494 Interest and Dividends Receivable (4.900) (6.050) (1.150) Levies and Precepts 0.332 0.335 0.003 Corporate Adjustments 7.355 7.216 (0.139) Total Outturn Position 543.440 539.583 (3.857) Transfers to / from reserves: RCCO - Capital Funded from Revenue 0.000 0.000 0.000 Transfer to Earmarked Reserves 58.564 58.564 0.000 Transfer from Earmarked Reserves (62.874) (62.874) 0.000 Use of General Reserves (19.282) (19.282) 0.000 Contribution into General Reserve 4.403 8.260 3.857 524.251 524.251 0.000 Financed By: Council Tax (329.430) (329.430) 0.000 Revenue Support Grant (13.517) (13.517) 0.000 Business Rates (20.984) (20.984) 0.000 Business Rates Top-up (93.370) (93.370) 0.000 Business Rates Relief Grant (7.603) (7.603) 0.000 New Homes Bonus (2.098) (2.098) 0.000 Other General Revenue Grants (46.745) (46.745) 0.000 PFI Grant (10.504) (10.504) 0.000 (524.251) (524.251) 0.000

Departments have continued to look for ways of working more efficiently and effectively to cut costs or generate additional income and set aside cash for future years when further budget reductions will be needed.

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There continues to be pressure on social care, which has resulted in a significant overspend in the Young People portfolio. The overspend in Young People was, in the main, driven by increased demand for Social Care support, such as placements for children in care, alternative arrangements for children unable to live with parents and increased numbers of children whose safety and well-being needs to be monitored through child protection plans and associated social worker support.

Although the Adult Care portfolio reported a breakeven position for 2019-20, this was affected by two large end of year adjustments. The first was for a credit loss allowance against its debtors at 31 March 2020. The loss allowance was £2.222m higher than in 2018-19 because of Covid-19 influencing the expected likelihood of recovery of amounts owed. It may be possible to offset any loss which is ultimately realised against grant funding provided by Government towards the costs of Covid-19. There was also a transfer to earmarked reserves of £3.807m towards funding the Better Lives Project, which is a joint initiative with Newton Europe, in which Adult Care is reviewing and revising its work processes, especially around the assessment of need and selection of the most appropriate care packages for Derbyshire’s residents. The Adult Care portfolio underspend before these two adjustments was £6.029m. This underspend occurred because of a number of factors, including reductions in high cost placements, reduced spend on the Integrated Community Equipment Service and high levels of unfilled vacancies in the Social W ork and Finance teams.

The main area of underspend in the Highways, Transport and Infrastructure portfolio was on waste management costs, which were less than expected due to waste tonnages being lower than originally forecast and because of additional short term savings from new service continuity arrangements. The portfolio underspend has also increased because Gold Card concessionary fares costs were less than anticipated due to reduced demand for public transport services. However, this underspend has been partially offset by an overspend on winter maintenance.

The underspend in the Corporate Services portfolio is mainly down to staffing vacancies not being filled in order to assist with the management of a number of staffing reviews and restructures. In particular these restructures are in the areas of Human Resources and Information, Communications and Technology, which should deliver savings in future years.

In 2019-20 the Council incurred direct costs amounting to £0.224m in respect of the Covid-19 crisis. Portfolios have received funding in 2019-20 for these costs from the Council’s General Reserve, which will be reimbursed from the additional Covid-19 funding received from Government in 2020-21.

The underspend of £6.155m on the Risk Management budget includes a £5.000m virement of budget from the Adult Care portfolio and additional funding received in-year. The Risk Management Budget has been utilised to meet budget pressures in 2020-21.

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The Debt Charges budget has overspent by £0.494m, reflecting interest payments, the Capital Financing Requirement (CFR), a Minimum Revenue Provision (MRP) of 2.5% in keeping with the policy reported to Cabinet on 22 November 2016 and a £4.500m one- off reduction in the Council’s Capital Adjustment Account Reserve. This reduction has been made on the basis that the amounts set aside to repay debt over the last ten years are well in excess of what is required to ensure the Council can repay its debts.

Interest and Dividends received on balances have exceeded budget by £1.150m. During most of 2019-20 the Bank of England’s base rate of interest was 0.75%. The base rate was reduced from 0.75% to 0.25% on 10 March 2020, with a further cut, to 0.10%, announced later in the month. The Council utilised a range of investments to maximise its income.

The £6.855m overspend on the Young People portfolio, after use of £1.382m from the Budget Management earmarked reserve agreed in the 2019-20 Revenue Budget Report, along with the £0.035m overspend on the Clean Growth and Regeneration portfolio, have been charged to the Council’s General Reserve in 2019-20, along with the underspends credited from the other portfolios. The overall Council underspend results in a £3.857m increase in the Council’s General Reserve. Underspends will be utilised to manage budgets over the medium term. Any decision on the use of underspends in this way are made by Cabinet.

The balance on the General Reserve at 31 March 2020 is £53.547m, however there are already commitments held against the balance, details of which were reported to Cabinet on 21 November 2019. These commitments will be updated as part of the Outturn Report for 2019-20. The delivery of the Council’s Five Year Financial Plan (FYFP) is heavily dependent on an adequate level of General Reserve, a 2019-20 underspend was anticipated as part of the decisions taken by Council at its budget setting meeting in February 2020. The need to maintain an adequate, risk assessed level of reserves has been a key part of the Council’s success, in both maintaining its financial standing and continuing to deliver high quality services.

The Comprehensive Income and Expenditure Statement shows a deficit on provision of services of £302.632m. This is different to the outturn position shown above as it includes both cash transactions and non-cash items, such as depreciation. The deficit, in the main, relates to the loss on disposal of non-current assets, which is referred to in more detail in Note 6.

Capital Expenditure

In 2019-20 the Council’s capital expenditure increased by £1.597m.

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2018-19 2019-20 £m £m Capital Expenditure 101.652 103.249 Funded by: Grants and Contributions 54.915 46.516 Loans 35.805 48.900 Revenue Contributions - - Capital Receipts 10.932 7.833

Total 101.652 103.249

In 2018-19 the Council changed its approach to allocating funding to capital projects. Before 2018-19 the Council funded some capital projects using revenue contributions. In 2018-19 and 2019-20 the decision was taken not to do this, leading to an increase in the Council’s use of available capital receipts and borrowing to replace the revenue contributions no longer being used.

In 2019-20 expenditure on Buxton Crescent has again been mostly funded from borrowing, whereas before 2018-19 a greater proportion of funding was from an external grant, which has now been mostly utilised. Capital receipts have been used towards a loan for Buxton Crescent, which will be repaid, with interest, in future years.

Using the freedom and flexibilities given to Local Enterprise Partnership (LEP) Accountable Bodies, the Council utilised Local Growth Fund underspends during 2017- 18 and 2018-19 to fund its capital programme. By the end of 2019-20, the Council had repaid £28.972m (2018-19: £13.302m). This has impacted on capital financing in 2019- 20, reducing the grant funding of capital expenditure and increasing borrowing.

Assets and Liabilities

The value of Property, Plant and Equipment Assets (PPE) has decreased by £107.166m from the previous year. The reason for this is that there are fewer assets on the balance sheet at the year-end as a result of schools converting to academies during the year, referred to in Note 6.

Current and Non-Current Investments have decreased by £76.926m and Cash and Cash Equivalents have increased by £32.500 from the previous year.

Current and Non-Current Debtors have decreased by £4.896m.

Current and Non-Current Borrowing have increased by £17.924m. The Council has not entered into any long-term debt since September 2010. The Council has one Lender Option Borrower Option (LOBO) loan, with a nominal value of £5 million, remaining.

Other Non-Current Liabilities have decreased by £233.260m. This decrease has arisen because of a £228.934m decrease in the valuation of the Local Government Pension Scheme and Teachers Pension Scheme net liabilities. This has contributed to a reduction in the Council’s Unusable Reserves. 7 NARRATIVE REPORT

Cashflow

The Council’s cashflow in 2019-20, which was the final year of a four-year funding deal from Government, does not highlight any significant changes. Interest paid and received were at similar levels to 2018-19. Dividends received have increased as the Council was invested in all of its pooled fund investments for the whole of 2019-20, compared to only part of the year in 2018-19.

For 2020-21 the Government rolled forward core components of the 2019-20 Local Government Finance Settlement, with elements of core funding increasing in line with CPI inflation, key Local Government grants being maintained at 2019-20 levels and £1bn of additional funding provided for social care.

Council Tax was increased by 3.99% in 2019-20. In 2020-21 Council Tax was increased by 2% to comply with Government’s expectation that part of the additional pressures in adult care would be funded by levying additional Adult Social Care Precept. No Council Tax increase is included in the Council’s FYFP in 2021-22. A 2% increase is forecast in 2022-23, 2023-24 and 2024-25.

The Better Care Fund (BCF) allocations and additional allocations of improved BCF will contribute to supporting Adult Care services.

In the event that more schools convert to academy status, there will be a loss of funding through the Dedicated Schools Grant matched by a reduction in expenditure on schools, however it could result in a potential loss of income from services the Council trades with schools.

Given the significant cuts to public expenditure and in particular to local government funding, the Council’s borrowing strategy continues to address the key issue of affordability without compromising the longer-term stability of the debt portfolio. W ith short-term interest rates currently much lower than long-term rates, it is likely to be more cost effective in the short-term to either use internal resources, or to borrow short-term loans instead. By doing so, the Council is able to reduce net borrowing costs and reduce overall treasury risk. The benefits of internal borrowing will be monitored regularly against the potential for incurring additional costs by deferring borrowing into future years when long-term borrowing rates are forecast to rise. The Council will monitor this ‘cost of carry’ and breakeven analysis. Its output may determine whether the Council borrows additional sums at long-term fixed rates in 2020-21, with a view to keeping future interest costs low, even if this causes additional cost in the short-term.

In addition, the Council may borrow short-term to cover cash flow shortages where it is advantageous to do so.

Provisions and Contingencies

Movements in provisions and contingencies are disclosed in the Notes to the Accounts. There have been no material changes to policy or to amounts during the year.

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Reserves

The Council’s total Usable Reserves, which include General and Earmarked Revenue Reserves, have decreased by £35.084m, to £331.648m.

The General Reserve balance has decreased by £11.023m, to £53.547m at 31 March 2020. There are commitments against this balance that are set out in the Revenue Outturn Report 2019-20.

During 2019-20, the Earmarked Reserves balance has decreased by £4.310m, to £229.135m. Earmarked Reserves are held for specific purposes and are regularly reviewed by Cabinet as part of the budget monitoring cycle. A more detailed analysis is available in Note 29 to the Accounts.

The Unapplied Capital Grants Reserve has decreased by £14.733m, to £41.552m at 31 March 2020. This reserve holds the grants and contributions received towards capital projects but which have yet to be applied to meet capital expenditure. As referred to in respect of the profile of the Council’s Capital Expenditure in 2019-20 above, using the freedom and flexibilities given to LEP Accountable Bodies, the Council utilised Local Growth Fund underspends during 2017-18 and 2018-19 to fund its capital programme. By the end of 2019-20, the Council had repaid £28.972m (2018-19: £13.302m). The majority of the decrease in this reserve in 2019-20 is also because of the repayment of this temporary funding provided in previous years.

The Capital Receipts Reserve has decreased by £5.018m, to £7.415m at 31 March 2020. This is money set aside to meet capital expenditure and has been used to finance The Crescent at Buxton, Glossopdale School and Linden House. The reserve has decreased in 2019-20 because of lower than forecast receipts, with actual receipts being around half of the 2018-19 level.

After adjusting for non-cash items, the Council’s General and Earmarked Reserves remain at robust, risk assessed levels. These levels are key to the delivery of the Council’s objectives over the medium term as a means of helping to manage significant potential liabilities and the general reduction in resources. All such risks are regularly reviewed and appear alongside mitigating actions, on the Council’s Strategic and Departmental Risk Registers. The Council formally reviews its reserves at least annually, as set out in the Council’s Reserves Policy. The last review was reported to Cabinet in November 2019.

Pensions Liability

Under International Accounting Standard 19 (IAS19), the Council is required to show the total future costs of pension liabilities for the Local Government Pension Scheme. This is a notional figure, as the Council’s budget is constructed on the basis of actual contributions payable.

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The IAS19 notional cost of the LGPS scheme for 2019-20 is £131.196m and for Teachers Pensions is £1.500m. The actual contributions made for the year were £56.269m and £4.427m respectively, resulting in a net adjustment to the revenue position of £72.000m. In addition, there were actuarial gains on both schemes, amounting to £294.190m and £6.744m respectively, resulting in a decrease of £228.934m in the total pensions liability of the Council, to £706.324m at 31 March 2020.

The impact of Covid-19 on financial markets towards the end of the financial year, which led to a negative return on LGPS scheme assets in 2019-20, has been more than offset by gains arising from changes to the demographic, financial and other assumptions used to measure LGPS scheme liabilities in the actuarial valuation as at 31 March 2019.

The overall net pensions liability is offset by a matching notional reserve, ensuring there is no impact on the level of Council Tax. The debit balance on the pensions reserve therefore shows a substantial shortfall between the benefits earned by past and current employees and the resources that the Council has set aside to meet them. The Funding Strategy adopted by the Pension Fund will ensure that funding will have been set aside by the time the benefits come to be paid.

Organisation and Governance

The Council is composed of 64 Elected Members who are democratically accountable to the residents of their electoral division. Members follow a Code of Conduct, to ensure high standards in the way they undertake their duties. The Cabinet consists of the Leader of the Council and six Members. The Cabinet is responsible for guiding the Council in the formulation of the corporate plan of objectives and key priorities, which is referred to in more detail, under Strategy and Resource Allocation, below. W ithin the policy framework, budgets and major plans are approved by the full Council and the Cabinet has executive responsibility for the implementation of the Council’s key goals and objectives.

The Governance, Ethics and Standards Committee (formerly the Standards Committee) promotes and maintains high standards, assists Members in observing the Code of Conduct and advises the Council on matters related to the Code of Conduct. The Council also operates four Improvement and Scrutiny Committees, which support the work of the Cabinet and the Council as a whole.

All Members meet together as the Council. Meetings are generally open for the public to attend, except where confidential matters are being discussed.

More information on the Council’s Governance Framework is included in the Council’s Annual Governance Statement, which is included at the end of these accounts.

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Local Enterprise Partnership

D2N2 is the Local Enterprise Partnership (LEP) for Derby, Derbyshire, Nottingham and Nottinghamshire. It plays a central role in deciding local economic priorities and undertaking activities to drive economic growth and create local jobs. It is a locally owned partnership between the public and private sectors and in April 2019 became incorporated in line with new Government guidelines. It is managed by a Board made up of the constituent councils, including Derbyshire County Council and private sector representatives.

The Council became the Accountable Body for the D2N2 LEP’s Local Growth Deal grant with effect from 1 April 2015. The Council made a successful bid to become the Single Accountable Body to the D2N2 LEP from 1 April 2019, taking on additional funds such as the Growing Places Fund and Building Foundations for Growth. As Accountable Body, the Council is responsible for overseeing the proper administration of financial affairs within the LEP with regard to public funds.

Following the announcement of Local Growth Fund 3 in March 2017, the grant allocation for the Local Growth Fund will be £250.7m over the six years up to 2020-21. During 2019-20 the grant has been allocated to a further six projects in the Derbyshire/ Nottinghamshire region, after successful grant bids were received and approved by the Investment Board.

The D2N2 LEP’s income and expenditure is accounted and administered independently from the Council’s accounts and therefore, do not form part of the main statements which appear later in this Statement of Accounts. This is in accordance with the principles set out in the Local Authority Accounting Code of Practice where the Council is acting as an intermediary and is therefore following the agent principle as set out in section 2.6.2.1 of the Code.

As part of its accountable body role, the Council administers a grant of £0.197m, from the Careers and Enterprise Company in respect of the Enterprise Adviser Network, which has been used to meet the costs of the Enterprise co-ordinators. Both this grant and the Local Growth Fund grant are identified separately on the Council’s financial ledger and have met the requirements of the grant conditions.

Derbyshire Developments Limited

In 2016-17 the Council began to operate a development company with the following aims and objectives:

• To generate a source of revenue income and capital investment return. • To make effective use of the Council’s land. • To create employment opportunities within Derbyshire, including for apprentices and the Council’s care leavers. • To maintain ethical and environmental standards in specification, development and construction of properties.

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During 2019-20 Derbyshire Developments Limited’s total expenditure was £0.030m, with no income, therefore, as in 2016-17 to 2018-19, it is considered that Group Accounts are not required. However, the Company will submit audited accounts to Companies House in accordance with the Companies Act 2006.

The company has had no activity within it since 2017-18, as its previous activities have been delivered by the Council to achieve the same aims and objectives. The Council had retained the company to give it the opportunity to refocus the company’s activities at some point in the future. However, on 16 March 2020, the Council approved the wind- up of the company as part of its plans to transform the delivery model of its property and estates management functions.

Vertas Derbyshire Limited and Concertus Derbyshire Limited

In 2019-20 the Council formed two Joint Venture companies, Vertas Derbyshire Limited and Concertus Derbyshire Limited, with Suffolk Group Holdings (Suffolk County Council), to focus on improving, rationalising or developing the Council’s surplus property. These companies have yet to start trading and to date have not generated any income or incurred any expenditure. The transition of the Council’s cleaning and caretaking service and design services was scheduled to take place on 1 April 2020. However, given the current situation regarding Covid-19, the transition of these services has been pushed back until 1 September 2020.

Strategy and Resource Allocation

The Council Plan sets out the future direction of the Council and the outcomes that the Council is seeking to achieve.

Outcomes

• Resilient and thriving communities which share responsibility for improving their areas and supporting each other. • Happy, safe and healthy people with solid networks of support, who feel in control of their personal circumstances and aspirations. • A strong, diverse and adaptable economy which makes the most of Derbyshire’s rich assets and provides meaningful employment opportunities for local people. • Great places to live, work and visit with outstanding schools, diverse cultural opportunities, transport connections that keep moving and a healthy environment for all. • High quality public services that work together and alongside communities to deliver services that meet people’s needs.

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Performance The Council Plan identifies a small number of focused priorities to direct effort and resource, supported by “deliverables” under each priority, which set out what the Council aims to deliver over the year. A graphical representation of the Council’s performance in 2019-20 against its priorities (inner wheel) and deliverables (outer wheel) is below.

The colours in each segment of the wheel show the extent of the Council’s achievement in 2019-20.

As an overview, 32 deliverables (73%) have been categorised as good, 11 as requiring review and 1 as requiring action. Of the five Council Plan priority areas, the priority for a prosperous Derbyshire in particular is performing well, whilst the priority for empowered and self-sufficient communities has the most risk to achieving outcomes.

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A set of key measures have also been developed, where appropriate, to enable the Council to further monitor the progress it is making by reporting performance against targets.

The colours in each segment of the wheel show the Council’s success in achieving its performance targets in 2019-20.

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To ensure effective monitoring and management of the performance of the Council, an end of year performance report for 2019-20 has been developed, which will be reported to Cabinet in Summer 2020. The report describes, in detail, the progress the Council has made against each of the deliverables set out in the Plan.

In summary, key areas of success are:

• In setting its Council Tax requirement in 2019-20, for 2020-21, the Council was amongst those county councils setting the lowest Council Tax increase of 2% , representing the levying of the adult social care precept to support adult social care funding. The average council tax increase across all county councils was 3.87%. • In accordance with its Enterprising Council approach, a range of service reviews across the Council have been undertaken to deliver more efficient, effective and value for money services. These reviews include Human Resources, Communications, Procurement, ICT and Occupational Health which are moving forward with revised structures and improvement plans. In addition, the review of libraries has made significant progress in transferring libraries to community management with eight successful Expressions of Interest and five business cases approved. • Joint Ventures with Suffolk Group Holdings (Suffolk County Council) have been established focusing on improving, rationalising or developing the Council’s surplus property. The transition of the cleaning and caretaking service and the design services was scheduled to take place on 1 April 2020. However, given the current situation regarding Covid-19, the transition of these services has been pushed back until 1 September 2020. • Over 1,100 businesses in Derbyshire have been supported with business advice through the Council’s Trusted Trader scheme. • An Employment and Skills Action Plan is progressing well, with an estimated 25,000 residents engaged in services offered through the Plan. • Good progress has continued to be made in increasing fibre enabled broadband across the county and it is anticipated that over 112,000 premises will have access to faster broadband by the end of December 2020. • For the last two years, over 80% of participants on Council run weight management programmes have lost weight, and participants in Council run stop smoking programmes who have stopped smoking have seen a year on year increase. • The Council was ranked third out of 28 participating councils for satisfaction in relation to Highways and Transportation. • Good progress is being made in driving improvements in children’s social care, with recruitment to permanent posts progressing and action plans in place for all localities. • The Council’s performance in reducing delayed transfers of care from hospital, though not achieving target, continues to be better than the national and East Midlands average.

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Key areas for consideration are:

• Adult Social Care and Health and Commissioning, Communities and Policy departments achieved in-year savings targets for 2019-20. Of the £2.650m saving target allocated for the Economy, Transport and Environment (ETE) department, in 2019-20, £0.737m was achieved, leaving a shortfall in-year of £1.913m, which was offset by a one off £2.000m contribution to enable Highways budgets to remain at the same level as previous years. An amount of unachieved savings of £3.321m has been brought forward from earlier years, although the department has always underspent the budget each year. Although ETE has plans in place to meet the annual targets each year, this means that a shortfall of over £5m will be carried forward. A plan is being developed to achieve these savings. Children’s Services department savings were approximately £0.7m short of achieving the 2019-20 target. The status for budget savings deliverable has been changed to “requiring action” as the Covid-19 pandemic will lead to some slippage in the savings programme. Preliminary work on Covid-19 costs identified that as much as £5m of savings across the Council will slip in the 2020-21 financial year. • Sickness absence in the Council remains high, at 10.4 days per appointment, however good progress is being made in implementing the employee wellbeing strategy and the impact this makes on employee absence will continue to be monitored. • On average 77.2% of road defects were repaired within target timescales during 2019-20, below the target of 90%, with performance impacted by heavy rain and flooding from Storms Ciara and Dennis. It should be noted, however, that latest figures now show that 88% of road defects are being completed within target timescales. • The percentage of pupils in primary and secondary schools judged good or outstanding is below target. A wide range of support has been provided to head teachers, governors, subject leaders and link advisers on the implications of the new Ofsted framework, which came into effect in September 2019. School inspections have now been suspended because of the Covid-19 crisis, with no date for them to restart and it is highly unlikely that there will be any opportunity to influence this indicator within the remainder of the 2020-21 academic year.

W here performance issues are highlighted the Council will consider whether there are any further actions that should be undertaken to improve performance to the desired level. The Council’s progress in delivering the Council Plan will continue to be monitored during 2020-21 and reports will be produced and reported to Cabinet on a quarterly basis. … Deliverable RAG

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Outlook, Risks and Opportunities

Funding

The current multi-year funding offer from Government ended on 31 March 2020. Funding announced in the Spending Review 2019 (SR 19) covered only a single year, 2020-21, leaving the Government more flexibility to respond to future developments, against a backdrop of political and economic uncertainty. The local government sector is seeking a multi-year settlement beyond 2020-21 to provide funding certainty and stability, similar to the four-year offer made by Government in 2015. It was expected that there would be a comprehensive multi-year Spending Round in 2020. It is not clear how the Covid-19 crisis might impact on these expectations.

In addition, the Government had been committed to introduce a 75% Business Rates Retention Scheme in 2020-21, with an eventual move to 100% retention. As expected, the Government announced in SR 2019 that Business Rates Retention Reform and the Fair Funding Review were delayed until April 2021 and this has now been further delayed by the Covid-19 crisis.

The Council’s Five Year Financial Plan (FYFP) is reviewed and updated at least annually. It was last updated during the annual budget setting process for 2020-21, earlier in 2020. A number of risks regarding the assumptions made in developing the FYFP were highlighted in the Revenue Budget Report, these being:

• The introduction of 75% and 100% Business Rates Retention is assumed to be fiscally neutral to the Council. There remains a period of consultation between local government and central government to establish a distribution methodology that is fit for purpose, however, local authorities are struggling to set medium term financial plans due to this element of uncertainty. • The existing allocations of the improved Better Care Fund continue to be paid beyond 2020-21, in line with the Government’s intentions. • There continues to be a consistent rise in business rates growth in the county, however a change in the economic life-cycle or a significant loss of business in the region will impact on the level of business rates income. • Inflationary increases are managed within existing budgets. The FYFP assumes that inflation will remain at the Government’s target of approximately 2% over the medium term. • A general 2% pay award is assumed for each year of the FYFP. The award for 2019- 20 has been agreed. At the time of publication, local government employers were in negotiation with the unions regarding an offer for 2020-21. Any amount over and above 2% will have to be met from within existing budgets. • National Living W age (NLW ) increases are assumed to result in independent sector care home fees increasing by no more than £13m in 2021-22 and 2022-23 and £10m thereafter. The 2020-21 increase is estimated to be £12m following the announcement that NLW will increase by 6.21% from April 2021. • Investment income will remain at 2019-20 levels over the next year, following the UK’s planned exit from the European Union on 31 January 2020.

17 NARRATIVE REPORT

Clearly, the Covid-19 crisis will impact on the FYFP assumptions, increasing risk, as well as the Council’s 2020-21 budget and achievement of savings targets. The challenges the Council faces in responding to the Covid-19 crisis, its impacts on funding and expenditure, are considered below. The Council’s 2020-21 Revenue Budget is being revised and will be reported to Cabinet on 9 July 2020.

Expenditure

By 2024-25, before the impact of Covid-19 is taken into account, which is considered below, the Council needed to have reduced expenditure by a further £65 million in real terms, of which £52m had been identified. This is in addition to a £284 million budget reduction the Council has already made to services since 2010. The Council continues to look at ways to save money and generate income, whilst trying to protect and deliver services suitable for the residents of Derbyshire.

Significant consultation and planning timeframes are required to achieve many of these savings. Delays in agreeing proposals could result in overspends by departments, which would then deplete the level of General Reserve held by the Council, decreasing its ability to meet short term, unforeseeable expenditure.

In many cases the cost savings proposals will be subject to consultation and equality analysis processes. No assumptions have been made as to the outcome of those consultations or the outcome of final decisions which have yet to be made. W ith regard to the savings proposals which have not yet been considered by Cabinet and, where appropriate, by individual Cabinet Members, the necessary consultation exercises will be undertaken and any equality implications will be assessed before final decisions are made. Throughout the process it will be essential to ensure that the Council continues to meets its statutory and contractual obligations.

There is a planned use of General and Earmarked Reserves from 2020-21 to 2024-25 in order to achieve a balanced budget.

Events after the balance sheet date

Trust Funds On 23 April 2020, Cabinet approved the transfer of 47 educational charitable Trust Funds, for which the Council is the sole Trustee, to Foundation Derbyshire. The total value of these funds was £1.323m at 31 March 2020.

Springwell Community College, Staveley Springwell Community College, in Staveley, became an Academy on 1 March 2020. A lease to the Two Counties Trust, for the school land and buildings, commenced on the same date but was signed on 13 May 2020. The assets have been disposed of in the Council’s accounts as at 31 March 2020.

18 NARRATIVE REPORT

Fire at Harrington Junior School, Long Eaton On 28 May 2020, a fire occurred at one of the Council’s schools, Harrington Junior School, in Long Eaton. The fire is what is known as a non-adjusting event after the balance sheet date because the fire which impacted on the condition of the school assets did not occur until after the balance sheet date.

The fire affected the main block of the school, which had a balance sheet value of £2.323m at 31 March 2020. It is expected that the Council will make an insurance claim for £3.600m, representing £3.015m for rebuilding the block and replacing its contents and £0.350m for the business continuity provision of temporary classrooms. The Council’s insurance excess of £1m will be met from its insurance fund.

Covid-19 The local government sector has responded swiftly to the Covid-19 outbreak, to ensure that it is supporting residents and businesses throughout the pandemic. The Council estimates that there will be substantial cost pressures over the coming months, as well as significant loss of income and slippage in the savings programme. These additional pressures include, but are not limited to:

• Additional cost of care packages. • Increased demand for Personal Protective Equipment. • Set up and administration of the Council’s Community Response Unit. • Managing the delivery of food parcels to shielded and vulnerable residents. • Increase in fees to independent sector care providers. • Children’s Services care placements. • Additional staffing to manage workloads and staff absences as a result of the pandemic. • Business Hardship Fund. • Loss of income from countryside sites and country, household waste recycling centres and registrars. • Loss of investment income.

In early April 2020, the Council made an initial estimate of the cost pressures, including loss of income, for the period April to June 2020. The costs at that time were estimated to be in excess of £30m.

In response to the financial pressures faced by local government, the Government has provided additional funding to support local authorities, which is welcome, however, there are concerns that it may not be sufficient. It is too early in the 2020-21 financial year to understand the true extent of the financial impact, but the Council will provide reports to its Corporate Management Team and Members as part of the usual budget monitoring process.

In addition to the additional costs, there is also expected to be some slippage on the Council’s savings programme as the Council has refocused its priorities during the response to the pandemic.

19 NARRATIVE REPORT

There are inevitably some risks and uncertainties during the following months which are difficult to quantify at this time. These include:

• Additional placements costs for children in care – the associated costs are likely to extend beyond the initial three month cost estimates. • Extended services in schools – whether these will be eligible for support for the Government’s Covid-19 grant for schools. • Personal Protective Equipment – demand has been high so the Council has continued to purchase large volumes in the knowledge that it will be quickly consumed. • Staffing costs – redeployment to support priorities during the pandemic. • Projects – the Council has a number of ongoing projects and discretionary activity – a number of these actions will be suspended.

There was an initial period of uncertainty in financial markets during mid-to-late March 2020 and local authorities had concerns about cashflow and the ability to obtain resources to fund activities. However, the Government decision to release some elements of grant funding to local authorities earlier than scheduled has helped to ease some of these concerns and there have been signs that financial markets have absorbed the initial shock and are starting to stabilise at pre-Covid-19 levels. The Council’s cashflow forecasting indicates that there are no immediate short-term concerns, however the Council has taken the decision to lessen the demand for cash in the short term by changing and introducing more flexibility into its approach to making Advanced Pension Contributions over the three year period from 2020-21.

The Council set its 2020-21 investment income budget at £6m in February 2020, when the Bank of England’s base rate of interest was 0.75%. The base rate was reduced from 0.75% to 0.25% on 10 March 2020, with a further cut, to 0.10%, announced later in the month. This will inevitably result in the Council being unable to meet its budgeted target income, as rates are expected to remain low in the short-term. Assuming a return to normal interest rate levels, this could result in a one-off shortfall in 2020-21 of at least £3m of the anticipated interest income of £6m.

The Council has made an offer to defer rent to business tenants of Council property for a period of three months in respect of the period April to June 2020. The terms of the deferral will be to secure repayment of the rent over the period up to the end of March 2022. W hilst the proposal in itself does not result in a deficit in the Council’s income, it will mean that income to the value of approximately £0.5m will be deferred beyond Quarter 1 of the 2020-21 financial year. However, it is likely that many of these businesses will be in no position to make up the “holiday” later in 2020-21 and it is recognised that the Council will probably have to write off a significant element of the income.

20 NARRATIVE REPORT

The Council will need to make significant investment to stimulate the local economy as it emerges from the impact of the pandemic in the coming months. The capital programme will be reviewed and this is likely to result in additional borrowing to support capital projects which could lead to an increase in base debt repayment and interest charges of up to £5m, subject to a wider affordability test of the Council’s financial resilience and sustainability.

There were no other significant events between the balance sheet date and the approval of these financial statements which would require disclosure or adjustment of the statements.

Increased Demand for Services

There continues to be an increased demand for services, leading to significant cost pressures in providing essential services such as social care and waste.

The Council’s Senior Members and Officers have lobbied Derbyshire MPs and the Secretary of State for Housing, Communities and Local Government regarding improving funding for the Council.

Social Care

Demographic growth continues to affect adult social care costs. Growth predictions show that the Council is subject to approximate annual increases of £3m in relation to adult services, with a further £2m for children transitioning to adulthood. These additional costs of £5m each year are predicted to continue for at least the next five years.

Over the last few years the National Living W age has increased annually by between 4% and 5%. For 2020-21, the increase is 6.21%. This directly impacts on the fees the Council pays to the independent sector. If this level of increase is to continue it could cost the Council an additional £13m each year.

The Council, along with other local authorities in the country, has expressed concern over the cost pressures associated with the provision of children’s social care. Many local authorities and the Local Government Association have urged Government to provide additional funding for the service.

There continues to be increased demand for children’s social care in Derbyshire, which is reflected at the national level. More children have had to be placed with external provides rather than in-house foster carers. The number of children in care as a percentage of the child population is below the England national average, however, there is a risk that demand will continue on the same trajectory as that seen in recent years, placing further financial pressure on the service.

21 NARRATIVE REPORT

The number of children in care nationally has reached a ten year high, rising from 60,900 in 2009, to 78,150 in 2019. In addition to this, there has been a further 139% rise in serious cases at the national level. The level of demand pressures on children’s services is unprecedented and is financially unsustainable.

The National Audit Office highlighted in a report published in 2018 that overspends on social care have been the drivers of overall service overspends in single-tier and county councils. Collectively, councils surpassed their children’s social care budgets by £714m in 2016-17 in order to protect children at immediate risk of harm, equivalent to 10.4% of budgeted spend for that service. There were overspends in the Council’s Young People portfolio in each of the four years from 2016-17. The service is facing increased demand, including rising numbers of children in care and children in need.

The need for additional support will continue to form part of the sector’s lobbying strategy.

W aste

Landfill tax, landfill site gate fees and contractual payments for the operation of Household W aste Recycling Sites and W aste Transfer Stations are subject to price rises in line with the Retail Price. There are also statutory increases of 3% in the cost per tonne of recycling credits.

The Council and Derby City Council entered into an Inter Authority Agreement (IAA) on 20 August 2014 in relation to the operation and management of a Public Private Partnership (PPP) contract with Resource Recovery Solutions (Derbyshire) Limited (RRS) for the construction of the long term New W aste Treatment Facility (NW TF) in Sinfin and the provision of associated services. The facility was due to open in 2017, however, RRS was not able to resolve ongoing issues at the plant to allow it to pass the certified performance tests needed to bring it into operation. The contract with RRS was terminated on 2 August 2019, following the issuing of a legal notice by the banks funding the project.

A new two year contract has been put in place by the councils to make sure waste that residents cannot recycle or choose not to recycle continues to be dealt with and that recycling centres and waste transfer stations continue to operate. The contract for these services is with waste management company Renewi UK Services Ltd.

W ork had been progressing on the facility to determine its condition and capability, however due to the measures introduced by the UK Government to counter the Covid-19 pandemic, work on site will be affected. This work is also being carried out by Renewi UK Services Ltd and will allow the councils to ascertain what measures need to be in place for the facility to become fully operational.

22 NARRATIVE REPORT

Funding for the facility had been loaned to RRS by the UK Green Infrastructure Platform and three leading international banks; Sumitomo Mitsui Banking Corporation and Shinsei Bank from Japan and Bayerische Landesbank from Germany. The councils are in negotiations to pay the banks an “estimated fair value” for the plant taking into account all of the costs of rectifying ongoing issues at the plant and the costs of providing the services to meet the agreed contract standards.

Climate Change

Climate Change is an issue that carries a high risk of financial uncertainty over the long term and will require coordinated effort by all public bodies, especially the Government. In the longer term it is hoped that early costs may be offset by future savings in the same way as the Council’s successful LED programme for replacement of street lights has done.

Opportunities

Enterprising Council The Council is examining modern and innovative ways of providing services. At the moment, around 50% of Council expenditure is provided on the Council’s behalf by the voluntary sector, parish councils, public-private partnerships, private contractors or charitable and community interest companies. The Council will be moving towards being an “Enterprising Council”, looking at all types of delivery models in the future, including sharing or trading services with other councils. The role and shape of public services has changed dramatically, and the Council faces significant challenges in providing the services local people want and need.

Being an Enterprising Council means:

• value for money is at the heart of everything the Council does • the Council is efficient and effective • the Council focuses on getting the best results for Derbyshire’s residents, whether by the Council delivering a service, or by using an external organisation − there is no one size fits all • the Council has a bold, innovative and commercial mind-set • the Council does things 'with' local people rather than 'to' them and values fairness, openness and partnership • the Council is proud of Derbyshire and ambitious for its public services.

Vision Derbyshire The county, district and city councils in the county are working towards a fundamentally new model of local government for Derbyshire and Derby, based on enhancing collaborations to deliver better outcomes for local people and places.

To address Derbyshire’s cross-cutting challenges, the councils have agreed several themes that would benefit the most from collaborative working. These are:

• Economic development. 23 NARRATIVE REPORT

• Social mobility. • Climate change. • Transport infrastructure.

This work marks a statement of intent from the councils to develop a fundamentally new way of working together to deliver differently for the people of Derbyshire. It is essential that the councils build on the engagement that has been achieved to capitalise on the potential benefits.

Learning from Covid-19 Whilst the council’s response has been challenging, it has demonstrated that the Council’s business continuity arrangements are robust as the Council was quick to adapt to new ways of working for many of its employees, with many office-based staff working from home. Governance arrangements were amended whilst maintaining systems of internal control.

The Council will seek to capture lessons learned and ensure that any benefits are implemented where it is appropriate and cost effective to do so. For example, the benefits of homeworking should be examined, as agile working and modern working practices are one of the key deliverables of the Council Plan. It also has synergies with both the ICT and Climate Change strategies.

The Council is working with partners in the county to examine a coordinated response to recovery from the lockdown measures implemented in March 2020. These actions will help to support local residents and businesses as they transition to post-lockdown activities, providing valuable assistance to our communities in both the short and medium term.

Peter Handford BA(Hons) PGCert FCPFA Director of Finance & ICT

24 STATEMENT OF RESPONSIBILITIES

The Council’s Responsibilities The Council is required to: • make arrangements for the proper administration of its financial affairs and to ensure that one of its Officers has the responsibility for the administration of those affairs. In this Council, that Officer is the Director of Finance & ICT; • manage its affairs to secure economic, efficient and effective use of resources and safeguard its assets; • approve the Statement of Accounts.

The Director of Finance & ICT’s Responsibilities The Director of Finance & ICT is responsible for the preparation of the Council’s Statement of Accounts, in accordance with the appropriate CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom (the Code). In preparing this Statement of Accounts, the Director of Finance & ICT has: • selected suitable accounting policies and then applied them consistently; • made judgments and estimates that were reasonable and prudent; • complied with the Code and the Regulations; • kept proper accounting records which were up-to-date; • taken reasonable steps for the prevention and detection of fraud and other irregularities; • ensured that events after the balance sheet date have been considered; • assessed the Council’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; • used the going concern basis of accounting on the assumption that the functions of the Council will continue in operational existence for the foreseeable future; and • maintained such internal control as determined necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

AUTHORISATION OF ACCOUNTS FOR ISSUE

Certificate of Director of Finance & ICT I certify that the accounts give a true and fair view of the financial position of the Council at 31 March 2020 and of its income and expenditure for the year then ended.

Peter Handford BA(Hons) PGCert FCPFA Director of Finance & ICT 24 November 2020

The Statement of Accounts were approved by the Audit Committee on 24 November 2020.

Councillor Kewal Singh Athwal Chair of the Audit Committee 25 COMPREHENSIVE INCOME AND EXPENDITURE STATEMENT

2018-19 2019-20

Gross Exp Gross Inc Net Exp Gross Exp Gross Inc Net Exp

Note £m £m £m £m £m £m A Adult Care 385.238 (119.968) 265.270 406.098 (127.567) 278.531 Corporate Services (formerly Council B Services) 42.333 (23.919) 18.414 29.295 (24.647) 4.648 Clean Growth and Regeneration (formerly Economic Development and C Regeneration) 2.317 (0.915) 1.402 6.698 (0.519) 6.179 Health and D Communities 48.660 (45.252) 3.408 50.655 (44.758) 5.897 Highways, Transport E and Infrastructure 122.625 (20.490) 102.135 127.893 (20.981) 106.912 Strategic Leadership, F Culture and Tourism 13.588 (1.404) 12.184 13.710 (1.273) 12.437 G Young People 684.134 (464.813) 219.321 668.912 (444.324) 224.588 A-G Net Cost of Services 1,298.895 (676.761) 622.134 1,303.261 (664.069) 639.192 Other Operating H Expenditure 6 232.752 174.670 Financing and Investment Income I and Expenditure 7 36.562 47.885 Taxation and Non- J Specific Grants 8 (596.675) (559.115) Deficit on Provision A-J of Services 294.773 302.632 Items that will not be Reclassified to Deficit on Provision of Services Gain on Revaluation of K Non-Current Assets 14 (70.739) (82.752) Loss on Revaluation of L Non-Current Assets 14 169.999 33.966 Remeasurement of Net Pension Liability/ M (Asset) 48 169.099 (300.934) Other Com prehensive Expenditure/ K-N (Incom e) 268.359 (349.720) Total Comprehensive Expenditure/ A-N (Incom e) 563.132 (47.088) The accompanying notes form an integral part of the financial statements.

26 BALANCE SHEET

31 Mar 2019 31 Mar 2020

£m Note £m 1,860.060 Property Plant & Equipment 14 1,752.894 50.301 Heritage Assets 15 49.570 2.249 Intangible Assets 18 1.529 98.665 Non-Current Investments 21 85.933 1.093 Non-Current Debtors 20 0.169 2,012.368 Total Non-Current Assets 1,890.095 145.999 Current Investments 21 81.805 1.953 Assets Held for Sale 19 2.341 2.212 Inventories 22 1.977 80.105 Current Debtors 23 76.133 41.659 Cash and Cash Equivalents 24 74.159 271.928 Total Current Assets 236.415 (37.574) Loans and Borrowing 21 (59.007) (129.932) Creditors 25 (142.737) (167.506) Total Current Liabilities (201.744) (246.075) Non-Current Borrowing 21 (242.566) (14.573) Provisions 26 (12.232) (1,003.978) Other Non-Current Liabilities 27 (770.718) (1,264.626) Total Non-Current Liabilities (1,025.516) 852.164 NET ASSETS 899.250

366.732 Usable Reserves 13 331.648 485.432 Unusable Reserves 13 567.602 852.164 TOTAL RESERVES 899.250

The accompanying notes form an integral part of the financial statements.

I certify that the Balance Sheet position gives a true and fair view of the financial position of Derbyshire County Council as at 31 March 2020.

Peter Handford BA(Hons) PGCert FCPFA Director of Finance & ICT

27 CASH FLOW STATEMENT

2018-19 2019-20

£m Note £m Net Surplus or (Deficit) on the provision (294.773) of services (302.634) 144.406 Adjustments for non cash movements 43 150.993 174.037 Adjustments for investing activities 43 166.854 Net cashflow from: 23.670 Operating Activities 42 15.213 (37.904) Investing Activities 40 4.541 10.639 Financing Activities 41 12.742 (3.595) Movement in Cash & Cash Equivalent 32.497 Cash & Cash Equivalents at the start of the 24 45.254 year 41.659 Cash & Cash Equivalents at the end of 24 41.659 74.156 the year

The accompanying notes form an integral part of the financial statements.

28 MOVEMENT IN RESERVES STATEMENT Note General Reserve Earmarked Reserves Unapplied Capital Grants Capital Receipts Reserve TOTAL USABLE RESERVES Unusable Reserves Total Council Reserves £m £m £m £m £m £m £m 2019-20 Balance at 31 March 2019 (64.570) (233.445) (56.285) (12.433) (366.731) (485.432) (852.162)

Movement in reserves during 2019-20 Total Comprehensive Income and Expenditure CIES 302.632 0.000 0.000 0.000 302.632 (349.720) (47.088) Adjustments between accounting basis and funding basis under regulations 13 (287.299) 0.000 14.733 5.018 (267.548) 267.548 0.000 Net Transfer to Reserves (4.310) 4.310 0.000 0.000 0.000 0.000 0.000 (Increase)/Decrease in 2019-20 11.023 4.310 14.733 5.018 35.084 (82.172) (47.088) Balance at 31 March 2020 carried forward (53.547) (229.135) (41.552) (7.415) (331.647) (567.604) (899.250)

2018-19 Balance at 31 March 2018 (65.033) (187.567) (36.906) (17.987) (307.491) (1,078.577) (1,386.068) IFRS 9 Measurement Adjustment (29.224) 0.000 0.000 0.000 (29.224) 0.000 (29.224) Balance at 1 April 2018 (94.257) (187.567) (36.906) (17.987) (336.715) (1,078.577) (1,415.292)

Movement in reserves during 2018-19 Total Comprehensive Income and Expenditure CIES 294.771 0.000 0.000 0.000 294.771 268.359 563.130 Adjustments between accounting basis and funding basis under regulations 13 (310.962) 0.000 (19.379) 5.554 (324.787) 324.787 0.000 Net Transfer to Reserves 45.878 (45.878) 0.000 0.000 0.000 0.000 0.000 (Increase)/Decrease in 2018-19 29.687 (45.878) (19.379) 5.554 (30.016) 593.146 563.130 Balance at 31 March 2019 carried forward (64.570) (233.445) (56.285) (12.433) (366.731) (485.432) (852.162) The accompanying notes form an integral part of the financial statements.

29 NOTES TO THE CORE FINANCIAL STATEMENTS

The values held within the proceeding Notes to the Accounts may vary slightly when compared to the main Statements or other notes. This is due to amounts being rounded. It is not expected that a difference would be in excess of £5,000 in any single case.

1. ACCOUNTING POLICIES

The Accounting Policies for the Council have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the Chartered Institute of Public Finance and Accountancy’s (CIPFA) Code of Practice on Local Authority Accounting (the Code). W here there is no specific guidance in the Code, the Council has developed its own Accounting Policy which is aimed at creating information which is:

• relevant to the decision making needs of users; and • reliable, in that the financial statements: • represent fairly the financial position, financial performance and cash flows of the entity; • reflect the economic substance of transactions, other events and conditions and not merely the legal form; • are neutral i.e. free from bias; • are prudent; and • are complete in all material respects.

The Policies outline how the Council will account for all income, expenditure, assets and liabilities held and incurred during the 2019-20 financial year.

The Accounting Policies of the Council are updated annually to reflect any changes in IFRS, including changes in International Public Sector Accounting Standards (IPSAS), HM Treasury guidance, CIPFA guidance or any other change in statute, guidance or framework impacting on the Council’s accounts.

The Accounting Policies of the Council, as far as possible, have been developed to ensure that the accounts of the Council are understandable, relevant, free from material error or misstatement, reliable and comparable.

2. CRITICAL JUDGEMENTS W HEN APPLYING THE ACCOUNTING STANDARDS

New W aste Treatment Facility The Council and Derby City Council entered into an Inter Authority Agreement (IAA) on 20 August 2014 in relation to the operation and management of a Public Private Partnership (PPP) contract with Resource Recovery Solutions (Derbyshire) Limited (RRS) for the construction of the long term New W aste Treatment Facility (NW TF) in Sinfin and the provision of associated services. The facility was due to open in 2017, however, RRS was not able to resolve ongoing issues at the plant to allow it to pass the certified performance tests needed to bring it into operation. The contract with RRS was terminated on 2 August 2019, following the issuing of a legal notice by the banks funding the project.

30

NOTES TO THE CORE FINANCIAL STATEMENTS

The Council and Derby City Council will be putting a second Inter Authority Agreement (IAA) into place to cover the period of the contract with Renewi UK Services Ltd. As with the previous IAA, this will establish that each council is represented on the board set up to oversee and implement the delivery of the project and has 50:50 voting rights, the councils collectively are considered to have power over the relevant activities and hence have control collectively. The relevant activities are the long term running of waste disposal for the councils. As decisions about the relevant activities will require the unanimous consent of both parties, the arrangement is considered to meet the definition of a joint arrangement. As the proposed arrangement is not structured as a separate entity it is classified as a joint operation and each council will recognise its share of the arrangement’s assets, liabilities, income and expenditure.

The Council has considered the accounting treatment for the NW TF and has determined that no asset or liability can be recognised on the balance sheet at 31 March 2020 because the asset has not been brought into service as intended.

Going Concern The Council has formally documented an assessment of its going concern status, in a Report to Audit Committee. The Director of Finance & ICT, as Section 151 Officer, has concluded that the Council remains a going concern and that it is appropriate that the Council’s Statement of Accounts for 2019-20 have been prepared on a going concern basis.

3. ACCOUNTING STANDARDS ISSUED AND NOT YET APPLIED

At the balance sheet date the following interpretations, new standards and amendments to existing standards have been published but not yet adopted by the Code:

• Amendments to IAS 28 Investments in Associates and Joint Ventures: Long–term Interests in Associates and Joint Ventures. The Council had no Associates and Joint Ventures during 2019-20 and these amendments would not have impacted on the Council’s 2019-20 accounts. • Annual Improvements to IFRS Standards 2015 – 2017 Cycle makes amendments to IFRS 3 and IFRS 11 in relation to joint operations, to IAS 12 in respect of the income tax consequences of dividends and to IAS 23 relating to the calculation of capitalisation rate on general borrowing. The improvements would not have impacted on the Council’s 2019-20 accounts.

31

NOTES TO THE CORE FINANCIAL STATEMENTS

• Amendments to IAS 19 Employee Benefits: Plan Amendment, Curtailment or Settlement – these amendments make it mandatory for the current service cost and the net interest for the period after a remeasurement to be determined using the assumptions used for the remeasurement and also clarifies the effect of a Plan amendment regarding what is known as the asset ceiling. In 2019-20 the Council had a net asset of £8.415m arising from settlements and a net liability of £1.057m relating to past service cost including curtailments. Settlements may arise because of a difference between the IAS 19 liability and the amount paid to settle the liability and can arise because of outgoing bulk transfers from the Pension Fund, including Council schools converting to academy status. The Actuary has reported that in 2019-20 the assumptions used for remeasurements of current service cost and net interest cost as a result of curtailments and settlements have not been been altered and there have been no Plan amendments, therefore these amendments to IAS 19 would not have impacted on the Council’s 2019-20 accounts.

4. PRIOR PERIOD ADJUSTMENTS

There are no prior period adjustments.

5. ASSUMPTIONS MADE AND OTHER ESTIMATION UNCERTAINTY

Property Plant and Equipment Valuation W hen determining current value for the measurement and disclosure requirements in relation to the Council’s Property, Plant and Equipment assets, the Council makes assumptions and estimations. W here direct observable market data is unavailable, judgement is required in order to determine a fair value and the Council uses relevant experts to ensure that appropriate valuation techniques are used. Typically judgements include considerations such as uncertainty and risk.

The method of valuation of the Council’s portfolio of schools is the Depreciated Replacement Cost method, using a Modern Equivalent Asset. In 2018-19 the Council changed its estimation methodology. W here the build requirement is greater than the actual asset, the more prudent estimation methodology adopted by the Council from 2018-19 onwards restricts the valuation to the actual size of the current asset. In previous years the Council valued schools according to the principle of intensity of use, without this restriction.

Land and Buildings assets measured at current value are revalued on a five year rolling basis by the Council’s internal team of valuers. Each property is assessed on its own merits and the valuation is determined with due regard to any change or uncertainties which may affect the specific property. It is estimated that a theoretical 1% market drop applied across all properties valued in 2019-20 would equate to an impairment variation of £0.319m, whilst a 2% drop would equate to £0.653m, which would be expensed through the surplus/deficit on the provision of services.

32

NOTES TO THE CORE FINANCIAL STATEMENTS

Valuation of the Council’s Land and Buildings assets was substantially complete prior to the declaration of Covid-19 as a global pandemic. All of the Council’s valuations and certificates have been produced on the same basis as they would have been before its occurrence. However, market activity is being impacted in many sectors as a result of the pandemic. As at the valuation date, the Council considers that it can attach less weight to previous market evidence for comparison purposes, to inform opinions of value. Indeed, the current global and national response to Covid-19 means that the Council is faced with an unprecedented set of circumstances on which to base this valuation judgement.

The Council’s valuation of its Land and Buildings assets is therefore reported on the basis of ‘material valuation uncertainty’ as indicated in Global Valuation Technical and Performance Standards and Practice Guidance Applications VPS 3 and VPGA 10 of the Royal Institute of Chartered Surveyors (RICS) Red Book Global Standards, containing mandatory rules, best practice guidance and related commentary for all members undertaking asset valuations. Consequently, less certainty and a higher degree of caution should be attached to the Council’s Land and Buildings valuation than would normally be the case. Given the unknown future impact that Covid-19 might have on the real estate market, the Council will keep its portfolio under frequent review. Clearly the real estate market will be disrupted significantly by Covid-19 over the next few months. However, because of the reduced level of certainty that can be attached to any valuation because of inconsistent data, or the absence of comparable data, it is impossible to adjust the Land and Building valuations included in the Council’s accounts with any meaning, either on an individual or on a portfolio basis.

Derbyshire Pension Fund – Material Valuation Uncertainty The Council participates in the Derbyshire Pension Fund (DPF). The DPF direct property portfolio valuation as at 31 March 2020 includes a 'material valuation uncertainty' clause. The response to Covid-19 meant that property valuers were faced with an unprecedented set of circumstances on which to base a judgement. As at the valuation date, they considered that less weight could be attached to previous market evidence for comparison purposes to inform opinions of value. Their valuations are therefore reported on the basis of ‘material valuation uncertainty’ as indicated in Global Valuation Technical and Performance Standards and Practice Guidance Applications VPS 3 and VPGA 10 of the Royal Institute of Chartered Surveyors (RICS) Red Book Global Standards. The Council’s participation in the DPF is set out at Note 48 of the Statement of Accounts.

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NOTES TO THE CORE FINANCIAL STATEMENTS

Britain leaving the European Union There remains a high level of uncertainty around the implementation of the 2016 Brexit referendum result. The United Kingdom left the European Union on 31 January 2020 and is now in a transition period until 31 December 2020, while the UK and European Union negotiate additional arrangements. Brexit developments have caused volatility in asset prices and hence also in bond yields. It is not possible to predict future Brexit developments with any degree of certainty, including the trading arrangements put in place with both the European Union and other non-European Union trading partners but these are likely to cause further volatility in asset prices and bond yields and therefore impact future actuarial assumptions affecting the Council’s Pension Fund Liabilities. In addition, pronouncements from the US Federal Reserve on the future direction of US interest rates and developments with respect to the Covid-19 pandemic and in global politics have the potential to cause similar levels of volatility in asset prices and bond yields and to materially impact future actuarial assumptions. The Council has engaged Hymans Robertson LLP as its Consulting Actuary to provide expert advice about the assumptions to be applied. The effect of changes in these estimates on the net pension liability of the Council are reviewed on an ongoing basis and are considered below.

Defined Benefit Pension Scheme Liabilities Estimation of the net liability to pay pensions depends on several complex judgements relating to: the discount rate used, the rate at which salaries are projected to increase, changes in retirement ages, mortality rates and expected returns on Pension Fund investments. The Council has engaged Hymans Robertson LLP as its Consulting Actuary to provide expert advice about the assumptions to be applied.

The effect of changes in these estimates on the net pension liability of the Council are reviewed on an ongoing basis. Variations in the key assumptions will have the following impact on the net liability: • A 0.5% decrease in the real discount rate will increase the net pension liability by £243.973m (9% increase in liability). • A 0.5% increase in the assumed level of pension increases will increase the net pension liability by £217.430m (8% increase in liability). • A 0.5% increase in the assumed level of salary increases will increase the net pension liability by £24.397m (1% increase in liability).

Impact of McCloud Judgement W hen the Local Government Pension Scheme (LGPS) benefit structure was reformed in 2014, transitional protections were applied to certain older members close to normal retirement age. The benefits accrued from 1 April 2014 by these members are subject to an ‘underpin’ which means that they cannot be lower than they would have received under the previous benefit structure. The underpin ensures that these members do not lose out from the introduction of the new scheme, by effectively giving them the better of the benefits from the old and new schemes.

34

NOTES TO THE CORE FINANCIAL STATEMENTS

In December 2018, the Court of Appeal upheld a ruling (“McCloud/Sargeant”) that similar transitional protections in the Judges’ and Firefighters’ Pension Schemes were unlawful on the grounds of age discrimination. The UK Government requested leave to appeal to the Supreme Court but this was denied at the end of June 2019. In July 2019, the Chief Secretary to the Treasury confirmed that the principles of the outcome would be accepted as applying to all public service schemes.

It is expected that the remedy in the LGPS will involve the extension of some form of statutory underpin to members who were not originally protected. The protection is expected to be extended to qualifying members who have left the scheme since April 2014, as well as to active members. The remedy is expected to result in a retrospective increase in benefits for some members, which in turn would give rise to a past service cost for the Fund’s employers. In addition, it is understood that the LGPS cost cap process will be restarted once the McCloud remedy has been agreed.

Quantifying the impact of the judgement at this stage is very difficult because it will depend on the compensation awarded, members’ future salary increases, length of service and retirement age, and whether (and when) members withdraw from active service. Salary increases in particular can vary significantly from year to year and from member to member depending on factors such as budget restraint, job performance and career progression.

The Fund’s Actuary made no estimated allowance for the McCloud judgement in its 2019 actuarial valuation, following instruction from the LGPS Scheme Advisory Board to value liabilities in the 31 March 2019 funding valuations in line with the current LGPS Regulations benefit structure. Therefore, the Fund’s Actuary has made an adjustment to its 2019-20 accounting roll-forward calculation. This adjustment estimates the liabilities for McCloud at 31 March 2020 from the 2019 valuation data, to ensure that the impact continues to be included within the Council’s balance sheet at 31 March 2020 (in line with the 2019 accounting approach). The impact of this adjustment is included with other remeasurement of the net pension liability in Other Comprehensive Income and Expenditure in the Comprehensive Income and Expenditure Statement.

The Government Actuary’s Department (GAD) has estimated that the impact for the LGPS as a whole could be to increase active member liabilities by 3.2%, based on a given set of actuarial assumptions. A full description of the data, methodology and assumptions underlying these estimates is given in GAD’s paper, dated 10 June 2019. The Fund’s Actuary has adjusted GAD’s estimate to better reflect the Derbyshire Pension Fund’s (Fund) local assumptions, particularly salary increases and withdrawal rates. The revised estimate as it applies to the Fund is that total liabilities (i.e. the increase in active members’ liabilities expressed in terms of the employer’s total membership) could be around 0.5% higher as at 31 March 2020, an increase for the Council of approximately £12.8m.

These numbers are high level estimates based on scheme level calculations and depend on several key assumptions.

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NOTES TO THE CORE FINANCIAL STATEMENTS

The impact on employers’ funding arrangements will likely be dampened by the funding arrangements they have in place. However, if the judgement is upheld then there will be unavoidable upward pressure on contributions in future years.

Impact of GMP Equalisation Guaranteed Minimum Pension (GMP) was accrued by members of the LGPS between 6 April 1978 and 5 April 1997. The value of GMP is inherently unequal between males and females for a number of reasons, including a higher retirement age for men and GMP accruing at a faster rate for women. However, overall equality of benefits was achieved for public service schemes through the interaction between scheme pensions and the Second State Pension. The introduction of the new Single State Pension in April 2016 disrupted this arrangement and brought uncertainty over the ongoing indexation of GMPs, which could lead to inequalities between men and women’s benefits.

As an interim solution to avoid this problem, GMP rules were changed so that the responsibility for ensuring GMPs kept pace with inflation passed in full to pension schemes themselves for members reaching state pension age between 6 April 2016 and 5 April 2021. Thereafter the Government’s preferred approach is to convert GMP to scheme pension. This new responsibility leads to increased costs for schemes (including the LGPS) and hence scheme employers.

For the 2019 actuarial valuation, given the Government’s preference for conversion to scheme benefits, the Fund Actuary has assumed that all increases on GMPs for members reaching State Pension Age after 6 April 2016 will be paid for by LGPS employers (known as a full GMP indexation allowance). The rolled forward position to 31 March 2020 therefore includes this allowance.

Financial Instruments Fair Value Estimates The fair value of the Council’s Lender Option Borrower Option (LOBO) loans and long term loans of £21.985m (£15.000m nominal) has been determined incorporating option pricing from Bloomberg. The fair value of all short term investments (under 1 year) has been assumed to be their nominal value.

The impact of a 1% interest rate rise on the fair value of the Council’s borrowing and investments at 31 March 2020 is a reduction of £43.891m in the net financial liability.

A loss allowance for financial assets has been recognised based on the gross value of trade debtors which are more than 30 days past due and which have been or are expected to be referred for review by the Council’s Legal Services department or under the Care Act (2014). A non-recovery rate based on the historical success rate of recovering such debt, once referred, along with a factor to reflect the prevailing economic conditions, is applied to the gross value of referred debt to determine the amount of the loss allowance. The factor for current market conditions was derived by comparing the expected default rate for 2020 with the historic default rate based on information collated by the major rating agencies. This is the first year that macroeconomic information has been used in the estimation of the loss allowance for trade debt. The change to this estimation technique has been made to factor in the

36

NOTES TO THE CORE FINANCIAL STATEMENTS significant general impact of the Covid-19 pandemic on the economy and its potential to impact on the Council’s ability to recover debt. A 1% decrease in the factor for current economic conditions would reduce the allowance for credit losses by £0.012m. A 1% decrease in the expected non-recovery rate would reduce the allowance for credit losses by £0.077m.

Business Rates Calculation of the Council’s business rates collection fund adjustment, involving estimates in relation to business rates arrears, allowance for doubtful debts, business rates overpayments and prepayments and provisions for appeals, has been subject to a greater degree of estimation in 2019-20 than in other years, as some of Derbyshire’s district and borough councils have yet to complete their estimation processes because of issues caused by the Covid-19 crisis, with the business rates 2019-20 return deadline being extended. Some councils have submitted draft figures and some councils have not submitted data, in which case a combination of their 2018-19 year end and preliminary 2020-21 initial returns, finalised in January 2020, have been used to estimate the business rates collection fund adjustment. The business rates collection fund adjustment in the Council’s accounts for 2019-20 is £2.751m, a 20% change in the estimated net position could increase the Council’s financial liability by approximately £0.550m.

Local authorities are liable for an element of any successful appeal against business rates charged to businesses in 2019-20 and earlier years. The billing authorities make provisions to recognise their best estimate of the amount that businesses have been overcharged, for which the Council’s proportionate share, approximately £2.631m, incorporating some of the estimates made above, has been reflected through the business rates collection fund adjustment account.

W aste Recycling Credits The Resource Recovery Solutions (Derbyshire) Ltd (RRS) quarter four waste contract creditor, in respect of recycling credits, is £1.916m. This is based on tonnages from previous periods, which have been reasonably consistent throughout the year. Under/over estimation of recycling credits tonnages could result in a variation of +/-3% (£0.057m).

6. OTHER OPERATING EXPENDITURE

2018-19 2019-20 £m £m (0.791) Trading Operations (1.051) 0.329 Levies and Precepts 0.335 233.214 Loss on Disposal of Non-Current Assets 175.383 0.000 Other Income and Expenditure 0.003 232.752 174.670

The surplus for the year from commercial trading operations was achieved with a gross expenditure of £0.589m (2018-19: £0.580m) offset against income of £1.640m (2018-19: £1.371m).

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NOTES TO THE CORE FINANCIAL STATEMENTS

Loss on disposal of fixed assets has reduced significantly in 2019-20 and the main reason for this is a decrease in the number of schools that converted to academies during the year (2019-20, 21; 2018-19, 31).

Movements on Fixed Assets, including disposals, are shown in Note 14.

7. FINANCING AND INVESTMENT INCOME AND EXPENDITURE

2018-19 2019-20 £m £m 19.339 Interest Payable 18.420 (2.799) Interest Receivable (2.355) (2.741) Dividends Receivable (3.574) 1.756 Financial Asset Fair Value Losses 8.352 1.562 Financial Asset Impairment Losses 4.000 19.445 Net Pension Costs 23.042 36.562 47.885

Movements in the fair value of the Council’s investments in pooled investment funds were included in Financing and Investment Income and Expenditure (FIIE) in 2018-19 for the first time. These funds have been recognised and measured at Fair Value through Profit or Loss (FVPL) in accordance with IFRS 9 Financial Instruments. However, any gains or losses have been reversed out to the Financial Instruments Adjustment Account as required by the statutory temporary override that The Ministry of Housing, Communities and Local Government (MHCLG) has issued. The override is effective for financial years 2018-19 to 2022-23.

Gains and losses relating to the impairment of financial assets were included in 2018-19 for the first time. This is in line with the latest CIPFA guidance which considers that conceptually debtors are now a credit facility. Therefore impairment losses from bad debts, gains or losses on the impairment of debt, or impairment of other investments held at amortised cost are a loss of principal and recognition in FIIE is therefore the default treatment.

Interest payable has been itemised in the table below.

2018-19 2019-20 £m £m 14.553 Interest Payable on Capital Borrowing 13.791 3.571 Interest Payable on PFI 3.384 0.583 Interest Payable on Finance Leases 0.572 0.632 Interest Payable on Other Items 0.673 19.339 18.420

Interest receivable has been itemised in the table below.

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NOTES TO THE CORE FINANCIAL STATEMENTS

2018-19 2019-20 £m £m (2.498) Interest Receivable on Investments (2.182) (0.016) Interest Receivable on Transferred Debt (0.009) (0.005) Interest Receivable on Finance Leases (0.008) (0.023) Interest Receivable on Cash & Bank Balances (0.010) (0.257) Interest Receivable on Other Items (0.146) (2.799) (2.355)

8. TAXATION AND NON-SPECIFIC GRANT INCOME

2018-19 2019-20 £m £m (313.854) Council Tax (329.760) 0.000 Revenue Support Grant (13.517) (102.298) Business Rates (23.735) (43.043) Business Rates Top-up (93.370) (13.642) Business Rates Relief Grant (7.603) (10.504) Private Finance Initiative Grant (10.504) (2.058) New Homes Bonus (2.098) (36.982) Other General Revenue Grants (46.745) (74.294) Capital Grants (31.783) (596.675) (559.115)

In 2018-19 the Council participated in a business rates pilot, along with Derbyshire’s District and Borough councils, the Derbyshire Fire and Rescue Service and Derby City Council. This affected the profile of non-specific grant income in that year, with no Revenue Support Grant, reduced Business Rates Top-Up Grant and increased Business Rates income and Business Rates Relief Grant.

39

NOTES TO THE CORE FINANCIAL STATEMENTS

9. EXPENDITURE AND FUNDING ANALYSIS 2018-19 2019-20 Expenditure/ Adjustm ents Expenditure/ Adjustm ents (Incom e) between Net (Incom e) between Net chargeable to funding Expenditure chargeable to funding Expenditure General and in General and in Reserve Accounting the Reserve Accounting the Balance Basis CIES Balance Basis CIES £m £m £m £m £m £m 246.747 (18.523) 265.270 Adult Care 262.021 (16.510) 278.531 (0.532) (18.946) 18.414 Corporate Services (2.895) (7.543) 4.648 1.299 (0.103) 1.402 Clean Growth and Regeneration 5.704 (0.475) 6.179 2.101 (1.307) 3.408 Health and Communities 4.328 (1.569) 5.897 85.482 (16.653) 102.135 Highways, Transport and Infrastructure 88.928 (17.984) 106.912 9.180 (3.004) 12.184 Strategic Leadership, Culture and Tourism 6.218 (6.219) 12.437 135.960 (83.361) 219.321 Young People 149.732 (74.856) 224.588 480.237 (141.897) 622.134 Net Cost of Services 514.036 (125.156) 639.192 (0.427) (233.179) 232.752 Other operating expenditure (0.713) (175.383) 174.670 Financing and investment 24.474 (12.088) 36.562 income and expenditure 26.264 (21.621) 47.885 Taxation and non-specific (474.595) 122.080 (596.675) grant income and expenditure (528.561) 30.554 (559.115) 29.689 (265.084) 294.773 Deficit/(Surplus) on Provision of Services 11.026 (291.606) 302.632 Opening General Reserve 65.038 Balance at 31 March 2019 64.573 29.224 IFRS 9 Measurement Adjustment 0.000 Opening General Reserve 94.262 Balance at 1 April 64.573 (29.689) Add/(less) Surplus/(Deficit) on General Reserve (11.026) Closing General Reserve 64.573 Balance at 31 March 53.547

40

NOTES TO THE CORE FINANCIAL STATEMENTS

Note to the Expenditure and Funding Analysis

2018-19 2019-20 Net Change Net Change Adjustm ents for the Adjustm ents for the for capital Pensions Other for capital Pensions Other purposes Adjustm ents Differences Total purposes Adjustm ents Differences Total (Note a) (Note b) (Note c) Adjustm ents (Note a) (Note b) (Note c) Adjustm ents £m £m £m £m £m £m £m £m (3.577) (14.946) 0.000 (18.523) Adult Care (3.687) (12.823) 0.000 (16.510) (4.341) (14.605) 0.000 (18.946) Corporate Services (formerly Council Services) (6.824) (0.719) 0.000 (7.543) Clean Growth and Regeneration (0.013) (0.091) 0.000 (0.103) (formerly Economic Development and Regeneration) (0.019) (0.456) 0.000 (0.475) (0.007) (1.300) 0.000 (1.307) Health and Communities (0.009) (1.560) 0.000 (1.569) (12.708) (3.945) 0.000 (16.653) Highways, Transport and Infrastructure (14.032) (3.952) 0.000 (17.984) (1.165) (1.838) 0.000 (3.004) Strategic Leadership, Culture and Tourism (1.414) (4.805) 0.000 (6.219) (51.303) (32.058) 0.000 (83.361) Young People (28.669) (46.187) 0.000 (74.856) (73.114) (68.783) 0.000 (141.897) Net Cost of Services (54.654) (70.502) 0.000 (125.156) (233.179) 0.000 0.000 (233.179) Other Operating Expenditure (175.383) 0.000 0.000 (175.383) (10.530) 0.000 (1.558) (12.088) Financing and investment income and expenditure (12.374) 0.000 (9.247) (21.621) 74.294 0.000 47.786 122.080 Taxation and non-specific grant income and expenditure 31.783 0.000 (1.229) 30.554 (242.529) (68.783) 46.228 (265.084) Deficit on Provision of Services (210.628) (70.502) (10.476) (291.606)

41

NOTES TO THE CORE FINANCIAL STATEMENTS a - Adjustments for Capital Fund and Expenditure Purposes

Adjustment to General Reserve Balance to meet the requirements of generally accepted accounting practices, this column adds in depreciation and impairment and revaluation gains and losses in the service lines and for:

• Other operating expenditure – adjusts for capital disposals with a transfer of income on disposal of assets and the amounts written off for those assets. • Financing and Investment Income and Expenditure - the statutory charges for capital financing i.e. Minimum Revenue Provision and other revenue contributions are deducted from financing and investment income and expenditure as these are not chargeable under generally accepted accounting practices. • Taxation and Non-Specific Grant Income and Expenditure – Capital grants are adjusted for income not chargeable under generally accepted accounting practices. Revenue grants are adjusted from those receivable in the year to those receivable without conditions or for which conditions were satisfied throughout the year. The Taxation and Non Specific Grant Income and Expenditure line is credited with capital grants in the year without conditions or for which conditions were satisfied in the year. b - Net change for the removal of pension contributions and the addition of pension IAS19 related expenditure and income

Net change for the removal of pension contributions and the addition of IAS19 Employee Benefits pension related expenditure and income:

• For services this represents the removal of the employer pension contributions made by the authority as permitted by statute and the replacement with current service costs and past service costs. • For Financing and Investment income and expenditure the net interest on the defined benefit liability is charged to the CIES. c - Other Differences

Other differences between amounts debited/credited to the Comprehensive Income and Expenditure Statement and the amounts payable/receivable to be recognised under statute:

• For Financing and investment income and expenditure the other differences column recognises adjustments to General Reserve for the timing differences for premiums and discounts and gains/losses on pooled funds measured at FVPL. • The charge under Taxation and non-specific grant income and expenditure represents the difference between what is chargeable under statutory regulations for Council Tax and business rates that was projected to be received at the start of the year and the income recognised under generally accepted accounting practices in the Code. This is a timing difference as any difference will be brought forward in future surpluses or deficits on the district/borough council Collection Funds. It also represents the movement in the Earmarked Reserve balances.

42

NOTES TO THE CORE FINANCIAL STATEMENTS

10. EXPENDITURE AND INCOME ANALYSED BY NATURE

2018-19 2019-20 £m £m Expenditure Employee expenses 607.124 602.551 Premises 31.955 29.210 Transport 28.694 29.259 Supplies and services 542.891 564.348 Capital depreciation, amortisation, impairment 88.230 77.899 Interest payments, loan modification, financial asset impairment and fair value changes 42.102 53.813 Precepts and levies 0.329 0.335 Trading operations (0.791) (1.051) Loss on disposal of assets 233.214 175.383 Total Expenditure 1,573.748 1,531.747 Income Fees, charges and other service income (188.458) (193.052) Interest and investment income (5.540) (5.929) Income from Council Tax, business rates (459.195) (446.866) Business rates relief grant (13.642) (7.603) Government grants and contributions (612.140) (575.665) Total Incom e (1,278.975) (1,229.115)

Deficit on the Provision of Services (294.773) (302.632)

11. AGENCY ARRANGEMENTS

The Council makes payments for Funded Nursing Care to providers on behalf of the Clinical Commissioning Groups (CCGs). The cost of administering the service is fully funded by the CCGs.

2018-19 2019-20 £m £m 9.245 Payments to Nursing Care Providers 9.487 (8.903) Recharge to CCGs (9.947) (0.087) Admin Charge to CCGs (0.091) 0.255 (0.551)

12. RELATED PARTY TRANSACTIONS

The Council is required to disclose material transactions with related parties – bodies or individuals that have the potential to control or influence the Council or to be controlled or influenced by the Council.

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NOTES TO THE CORE FINANCIAL STATEMENTS

County Council Controlled Companies MEGZ Limited is a private company limited by 9,251 ordinary shares, all of which are held by the Council. There are three directors of the company who are Members of the Council; all have been appointed by the Council. There were no transactions with the company during the financial year.

The Derbyshire Environmental Trust Limited is a company limited by guarantee with no share capital. Income transactions with this organisation in the year totalled £0.069m. There were no expenditure transactions during the year.

The Creswell Heritage Trust is a company limited by guarantee with no share capital. The company secretary, formerly a director, of the Trust is a Member who was appointed by the Council. Income transactions with this organisation in the year totalled £0.002m and expenditure transactions totalled £0.102m.

Scape Group Limited is a private limited company. The Council holds 75,000 of its £1 ordinary shares (17% share). The Council has one director on the company board who is an elected Member of the Council and was appointed by the Council. During 2019-20 the Council received dividends of £0.400m from Scape Group Limited.

Derbyshire Developments Limited was a private company limited by one ordinary share of £1. There were three directors all appointed by the Council. The Council provided a start-up loan to the company to cover running costs such as staffing, accommodation, IT and audit, up until the point where income would recover these fixed costs of being “in business”. As part of its recent plans to transform the delivery model of its property and estates management functions, the Council approved the wind-up of the company on 16 March 2020, at which time the balance on the loan to Derbyshire Developments Limited was £0.528m. This loan has been written off and the company’s remaining assets of £0.013m in cash were recovered by the Council. Interest of £0.028m accrued to the balance of the loan, during 2019-20, at a rate of base plus 5%.

Joint Venture Companies In 2019-20 the Council formed two Joint Venture companies, Vertas Derbyshire Limited and Concertus Derbyshire Limited, with Suffolk Group Holdings (Suffolk County Council). These companies have yet to start trading and to date have not generated any income or incurred any expenditure.

Central Government has significant influence over the general operations of the Council – it is responsible for providing the statutory framework within which the Council operates, provides the majority of its funding in the form of grants and prescribes the terms of many of the transactions that the Council has with other organisations. Grants received from Government departments are set out in the subjective analysis in Note 10. Grant receipts are also disclosed in Note 8 and Note 39.

44

NOTES TO THE CORE FINANCIAL STATEMENTS

Typical transactions with Central Government bodies include, but are not restricted to, investments, Pay As You Earn and National Insurance contributions paid and pension contributions paid. Income transactions in the year, excluding grants, totalled £17.187m, of these, £17.048m were with academy schools. Expenditure transactions totalled £191.645m and included the following significant transactions:

Inland Revenue £101.415m Teachers’ Pensions £40.433m Public W orks Loan Board £21.503m

Other Local Authorities - typical transactions include, but are not restricted to, investments, borrowing, repayment of transferred debt, re-imbursement of joint project costs and supplies of goods and services. Income transactions totalled £28.650m and included significant transactions with Derby City Council totalling £15.776m. Expenditure transactions totalled £38.203m excluding short term lending and repayment of borrowing with other local authorities.

Health Bodies - typical transactions include, but are not restricted to, re-imbursement of joint project costs and supplies of goods and services. Income transactions with health bodies in the year totalled £77.824m and included significant transactions with NHS Derby and Derbyshire CCG of £72.416m. Expenditure transactions totalled £27.825m and included transactions with Derbyshire Community Health Services NHS Foundation Trust of £23.702m.

Members and Senior Officers - Council Members and Senior Officers have direct control over the Council’s financial and operating policies. The total of Members’ allowances paid in 2019-20 is shown in Note 32. Income transactions in which Members and/or Senior Officers had an interest totalled £78.337m, of which £72.416m is in respect of NHS Derby and Derbyshire CCG, which has the Council’s Director of Public Health on its Governing Body as a local authority representative. During 2019-20 works and services to the value of £2.339m, of which £0.945m is in respect of NHS Derby and Derbyshire CCG, were commissioned from companies in which Members and/or Senior Officers had an interest. There were no material outstanding balances at year end. Contracts were entered into in full compliance with the Council’s Standing Orders.

During 2019-20 a Member was serving as Derbyshire’s Deputy Police and Crime Commissioner, four Members served as Council appointed members of the Peak District National Park Authority, one Member served as the Council’s representative to Belper Leisure Centre Limited, a charitable company limited by guarantee, and one Member served as a Director on the D2N2 LEP, which is a company limited by guarantee.

Derbyshire Pension Fund - the Council is the administering authority for the purposes of the Derbyshire Pension Fund (the Fund) under the Local Government Pension Scheme Regulations 2013.

Included in management expenses in 2019-20 are charges from the Council of £2.510m (2018-19, £2.269m) for expenses incurred in respect of oversight and governance of the Fund, for Fund administration and for management of the Fund’s in-house investments.

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NOTES TO THE CORE FINANCIAL STATEMENTS

At 31 March 2020 the Fund owed the Council £1.056m (31 March 2019, the Council owed the Fund £3.899m).

It has not been possible to apportion, on a reasonable basis, the costs and benefits of key management personnel between the Council and the Fund. However, Members’ Allowances and Officers’ Remuneration are disclosed in Notes 32 and 33.

LGPS Central Limited - LGPS Central Limited (LGPSC) has been established to manage investment assets on behalf of eight Local Government Pension Scheme (LGPS) funds across the Midlands. It is jointly owned in equal shares by the eight administering authorities participating in the LGPSC Pool, of which the Council, as the administering authority for the Fund, is one of the shareholders.

The Fund had £1.315m invested in share capital and £0.685m in a loan to LGPSC at 31 March 2020 (31 March 2019, £1.315m and £0.685m, respectively) and was owed interest of £0.036m on the loan to LGPSC on the same date (2018-19, £0.043m).

In February 2020, the Fund transitioned its UK Corporate Bond portfolio into LGPSC’s Investment Grade Credit sub-fund and paid associated management fees of £0.004m to LGPSC in 2019-20.

LGPSC also provided advisory management services in respect of the Fund’s Japanese Equities and Asia Pacific Ex-Japanese Equities in the year. LGPSC’s advisory management services mandate for Emerging Market Equities was terminated on 15 June 2019 and its mandate to manage the Fund’s UK Equity portfolio on a discretionary basis was terminated on 14 November 2019. The charges in respect of these services totalled £0.551m in 2019-20 (2018-19, £0.764m), of which £0.065m was payable to LGPSC at 31 March 2020 (31 March 2019, £0.211m).

The Fund incurred £0.813m in respect of Governance, Operator Running and Product Development in connection with LGPSC in 2019-20 (2018-19, £0.756m), of which £0.213m was payable to LGPSC at 31 March 2020 (31 March 2019, £0.125m).

LGPSC leases office space from the Council. The lease commenced on 14 June 2018 and is for a duration of five years, with a break clause at 30 June 2021. The rental income received and receivable by the Council from LGPSC in 2019-20 amounted to £0.014m (2018-19, £0.014m). For the duration of the lease term, subsequent years’ rentals will be subject to an annual increase of 2.8%.

D2N2 Local Enterprise Partnership (LEP) - the Council is the Accountable Body for the D2N2 LEP. In 2019-20 the Council received £2.368m from the D2N2 LEP, of which £2.278m was given as grants and £0.090m as non-grants. W orks and services to the value of £0.063m were commissioned from the Council by the D2N2 LEP. There were no material outstanding balances at 31 March 2020.

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NOTES TO THE CORE FINANCIAL STATEMENTS

13. ADJUSTMENTS BETW EEN ACCOUNTING BASIS AND FUNDING BASIS

This note details the adjustments that are made to the total comprehensive income and expenditure recognised by the Council in the year, in accordance with proper accounting practice, to align with the resources that are specified by statutory provisions as being available to the Council to meet future capital and revenue expenditure.

47

NOTES TO THE CORE FINANCIAL STATEMENTS

Usable reserves Note Reserve General Earmarked Reserves Capital Unapplied Grants Receipts Capital Reserve Unusable Total Reserves Total Narrative Revenue £m £m £m £m £m £m

BALANCE AT 31 MARCH 2019 (64.570) (233.445) (56.285) (12.433) (485.429) (852.162)

Comprehensive Income & Expenditure 302.632 0.000 0.000 0.000 (349.720) (47.088) Adjustments between accounting basis and funding basis

Depreciation of Non-Current Assets 14 (42.602) 0.000 0.000 0.000 42.602 0.000

Impairment of Non-Current Assets 14 (12.055) 0.000 0.000 0.000 12.055 0.000

Application of Capital Grants credited to the CIES 39 31.783 0.000 (31.783) 0.000 0.000 0.000

Disposal of Non-Current Assets 14 (175.383) 0.000 0.000 (2.809) 178.192 0.000 Revenue Expenditure Funded from Capital Under Statute (23.254) 0.000 0.000 0.000 23.254 0.000 Amount by which officer remuneration charged to the CIES on an accruals basis is different from remuneration chargeable in the year in accordance with statutory requirements 1.498 0.000 0.000 0.000 (1.498) 0.000 Amount by which Council Tax and Business Rates income credited to the CIES is different from Council Tax and Business Rates income calculated for the year in accordance with statutory requirements 3.081 0.000 0.000 0.000 (3.081) 0.000

48

NOTES TO THE CORE FINANCIAL STATEMENTS

Reversal of items relating to retirement benefits debited or credited to the CIES 48 (132.696) 0.000 0.000 0.000 132.696 0.000 Statutory provision for the financing of capital investment 10.948 0.000 0.000 0.000 (10.948) 0.000 Principal repayments of transferred debt (0.068) 0.000 0.000 0.000 0.068 0.000 Capital expenditure charged in the year to the General Reserve 0.000 0.000 0.000 0.000 0.000 0.000 Reversal of gains/losses on pooled investment funds measured at FVPL charged to the CIES 21 (8.352) 0.000 0.000 0.000 8.352 0.000 Amount by which finance costs (proportion of previous years' premiums) charged to the CIES are different from finance costs chargeable in the year in accordance with statutory requirements 21 0.244 0.000 0.000 0.000 (0.244) 0.000 Amount by which finance costs (capital loan impairments) charged to the CIES are different from finance costs chargeable in the year in accordance with statutory requirements 21 (1.139) 0.000 0.000 0.000 1.139 0.000 Employer's pension contributions and direct payments to pensioners payable in the year 48 60.696 0.000 0.000 0.000 (60.696) 0.000 Capital receipts from Finance Lease Debtors 46 0.000 0.000 0.000 (0.007) 0.007 0.000 Financing of capital expenditure 17 0.000 0.000 46.516 7.834 (54.350) 0.000 Adjustments between accounting basis and funding basis (287.299) 0.000 14.733 5.018 267.548 0.000 Reserves movements Transfer to Earmarked Reserves 29 58.564 (58.564) 0.000 0.000 0.000 0.000 Transfer from Earmarked Reserves 29 (62.874) 62.874 0.000 0.000 0.000 0.000 Total m ovem ents (291.609) 4.310 14.733 5.018 267.548 0.000 BALANCE AT 31 MARCH 2020 (53.547) (229.135) (41.552) (7.415) (567.601) (899.250)

49

NOTES TO THE CORE FINANCIAL STATEMENTS

Usable reserves Note General Reserve Earmarked Reserves Unapplied Capital Grants Capital Receipts Reserve Total Unusable Reserves Total Narrative Revenue £m £m £m £m £m £m BALANCE AS AT 31 MARCH 2018 (65.033) (187.567) (36.906) (17.987) (1,078.575) (1,386.068) IFRS 9 Measurement Adjustment (29.224) 0.000 0.000 0.000 0.000 (29.224)

BALANCE AS AT 1 APRIL 2018 (94.257) (187.567) (36.906) (17.987) (1,078.575) (1,415.292)

Comprehensive Income & Expenditure 294.771 0.000 0.000 0.000 268.359 563.130 Adjustments between accounting basis and funding basis Depreciation of Non-Current Assets 14 (42.569) 0.000 0.000 0.000 42.569 0.000 Impairment of Non-Current Assets 14 (30.544) 0.000 0.000 0.000 30.544 0.000 Application of Capital Grants credited to the CIES 39 74.294 0.000 (74.294) 0.000 0.000 0.000 Disposal of Non-Current Assets 14 (233.214) 0.000 0.000 (5.334) 238.548 0.000 Revenue Expenditure Funded from Capital Under Statute (15.117) 0.000 0.000 0.000 15.117 0.000 Amount by which officer remuneration charged to the CIES on an accruals basis is different from remuneration chargeable in the year in accordance with statutory requirements (1.460) 0.000 0.000 0.000 1.460 0.000 Amount by which Council Tax and Business Rates income credited to the CIES is different from Council Tax and Business Rates income calculated for the year in accordance with statutory requirements 1.907 0.000 0.000 0.000 (1.907) 0.000

50

NOTES TO THE CORE FINANCIAL STATEMENTS

Reversal of items relating to retirement benefits debited or credited to the CIES 48 (126.372) 0.000 0.000 0.000 126.372 0.000

Statutory provision for the financing of capital investment 4.665 0.000 0.000 0.000 (4.665) 0.000 Principal repayments of transferred debt (0.078) 0.000 0.000 0.000 0.078 0.000 Capital expenditure charged in the year to the General Reserve 0.000 0.000 0.000 0.000 0.000 0.000 Reversal of gains/losses on pooled investment funds measured at FVPL charged to the CIES 21 (1.756) 0.000 0.000 0.000 1.756 0.000 Amount by which finance costs (proportion of previous years premiums) charged to the CIES are different from finance costs chargeable in the year in accordance with statutory requirements 21 0.198 0.000 0.000 0.000 (0.198) 0.000 Amount by which finance costs (reversal of effective interest rate) charged to the CIES are different from finance costs chargeable in the year in accordance with statutory requirements 21 0.000 0.000 0.000 0.000 0.000 0.000 Employer's pension contributions and direct payments to pensioners payable in the year 48 59.049 0.000 0.000 0.000 (59.049) 0.000 Capital receipts from Finance Lease Debtors 46 0.035 0.000 0.000 (0.044) 0.009 0.000 Financing of capital expenditure 17 0.000 0.000 54.915 10.932 (65.847) 0.000 Adjustments between accounting basis and funding basis (310.962) 0.000 (19.379) 5.554 324.787 0.000 Reserves movements Transfer to Earmarked Reserves 29 129.995 (129.995) 0.000 0.000 0.000 0.000 Transfer from Earmarked Reserves 29 (84.117) 84.117 0.000 0.000 0.000 0.000 Total m ovem ents (265.084) (45.878) (19.379) 5.554 324.787 0.000 BALANCE AT 31 MARCH 2019 (64.570) (233.445) (56.285) (12.433) (485.429) (852.162)

51

NOTES TO THE CORE FINANCIAL STATEMENTS

14. PROPERTY, PLANT AND EQUIPMENT

The value of Property, Plant and Equipment (PPE) assets in the Balance Sheet are shown at their carrying valuation, less accumulated depreciation charges. The table below shows the movement in PPE assets during the year: Land & Land Buildings Plant Vehicles, Equipment & Infrastructure Assets Community Assets Assets Surplus Under Assets Construction Plant Property Equipment &

Note/ ent Statem £m £m £m £m £m £m £m COST OR VALUATION At 1 April 2019 1,482.536 69.523 442.002 4.473 10.456 42.736 2,051.726 Additions 21.401 5.412 20.792 0.041 0.000 27.601 75.247 Disposals (138.623) (5.826) 0.000 0.000 (1.021) 0.000 (145.470) Disposals derecognition (32.671) 0.000 (11.793) (0.029) 0.000 0.000 (44.493) Revaluation Gains to RR* CIES 60.164 0.000 0.000 0.000 1.219 0.000 61.383 Revaluation Losses to RR CIES (32.365) 0.000 0.000 0.000 (0.500) 0.000 (32.865) Revaluation Losses to CIES (11.468) 0.000 0.000 0.000 (0.011) 0.000 (11.479) Transfer within PPE 0.827 0.060 0.000 0.017 (0.904) 0.000 0.000 Transfer to Held for Sale (0.467) 0.000 0.000 0.000 0.181 0.000 (0.286) At 31 March 2020 1,349.334 69.169 451.001 4.502 9.420 70.337 1,953.763 DEPRECIATION At 1 April 2019 (33.857) (58.806) (98.621) (0.029) (0.353) 0.000 (191.666) Charge for year (27.632) (2.146) (12.016) (0.004) (0.045) 0.000 (41.843) Revaluations to RR CIES 20.457 0.000 0.000 0.000 0.077 0.000 20.534 Impairment to CIES (0.240) 0.000 0.000 0.000 0.000 0.000 (0.240) Disposals 3.643 5.787 0.000 0.000 0.031 0.000 9.461 Disposals derecognition 1.019 0.000 1.879 0.000 0.000 0.000 2.898 Transfer within PPE 0.038 (0.060) 0.000 0.000 0.022 0.000 0.000 Transfer to Held for Sale 0.000 0.000 0.000 0.000 (0.013) 0.000 (0.013) At 31 March 2020 (36.572) (55.225) (108.758) (0.033) (0.281) 0.000 (200.869) OPENING VALUE 1,448.679 10.717 343.381 4.444 10.103 42.736 1,860.060 CLOSING VALUE 1,312.762 13.944 342.243 4.469 9.139 70.337 1,752.894 NATURE OF ASSET HOLDING Purchased / Built 1,280.055 13.944 342.243 4.469 9.139 70.337 1,720.187 Finance Lease 10.839 0.000 0.000 0.000 0.000 0.000 10.839 Private Finance Initiative 21.868 0.000 0.000 0.000 0.000 0.000 21.868 1,312.762 13.944 342.243 4.469 9.139 70.337 1,752.894 *RR - Revaluation Reserve

The fair value measurement of the Council’s Surplus Assets is analysed below, with net book value being categorised as fair value Level 1, Level 2 or Level 3. Refer to Note 21 for more information about these Levels.

52

NOTES TO THE CORE FINANCIAL STATEMENTS

Net Book Value (NBV) Level 1 Level 2 Level 3 Total £m £m £m £m

Land 0.000 1.179 6.959 8.138 Buildings 0.000 0.412 0.589 1.001 0.000 1.591 7.548 9.139

The 2018-19 position was: Land & Land Buildings Plant Vehicles, Equipment & Infrastructure Assets Community Assets Assets Surplus Under Assets Construction Plant Property Equipment &

Note/ ent Statem £m £m £m £m £m £m £m COST OR VALUATION At 1 April 2018 1,819.981 68.196 426.733 4.108 13.584 46.802 2,379.404 Additions 44.566 7.296 32.604 0.365 0.099 (4.066) 80.864 Disposals (205.242) (5.804) 0.000 0.000 (1.952) 0.000 (212.998) Disposals derecognition (21.581) 0.000 (17.335) 0.000 0.000 0.000 (38.916) Revaluation Gains to RR* CIES 37.842 0.000 0.000 0.000 3.163 0.000 41.005 Revaluation Losses to RR CIES (167.281) 0.000 0.000 0.000 (2.027) 0.000 (169.308) Revaluation Losses to CIES (26.052) 0.000 0.000 0.000 (0.059) 0.000 (26.111) Transfer within PPE 0.338 0.000 0.000 0.000 (0.338) 0.000 0.000 Transfer to Heritage 0.000 0.000 0.000 0.000 0.000 0.000 0.000 Transfer to Held for Sale (0.035) (0.165) 0.000 0.000 (2.014) 0.000 (2.214) At 31 March 2019 1,482.536 69.523 442.002 4.473 10.456 42.736 2,051.726 DEPRECIATION At 1 April 2018 (39.349) (63.483) (90.021) (0.025) (0.450) 0.000 (193.328) Charge for year (29.271) (1.175) (11.457) (0.004) (0.027) 0.000 (41.934) Revaluations to RR CIES 29.064 0.000 0.000 0.000 0.037 0.000 29.101 Impairment to CIES (4.392) 0.000 0.000 0.000 0.000 0.000 (4.392) Disposals 9.432 5.687 0.000 0.000 0.002 0.000 15.121 Disposals derecognition 0.648 0.000 2.857 0.000 0.000 0.000 3.505 Transfer within PPE 0.011 0.000 0.000 0.000 (0.011) 0.000 0.000 Transfer to Heritage 0.000 0.000 0.000 0.000 0.000 0.000 0.000 Transfer to Held for Sale 0.000 0.165 0.000 0.000 0.096 0.000 0.261 At 31 March 2019 (33.857) (58.806) (98.621) (0.029) (0.353) 0.000 (191.666) OPENING VALUE 1,780.632 4.713 336.712 4.083 13.134 46.802 2,186.076 CLOSING VALUE 1,448.679 10.717 343.381 4.444 10.103 42.736 1,860.060 NATURE OF ASSET HOLDING Purchased / Built 1,351.980 10.717 343.381 4.444 10.103 42.736 1,763.361 Finance Lease 12.839 0.000 0.000 0.000 0.000 0.000 12.839 Donated 0.323 0.000 0.000 0.000 0.000 0.000 0.323 Private Finance Initiative 83.537 0.000 0.000 0.000 0.000 0.000 83.537 1,448.679 10.717 343.381 4.444 10.103 42.736 1,860.060

*RR - Revaluation Reserve

53

NOTES TO THE CORE FINANCIAL STATEMENTS

Under IFRS13, the Council is required to provide a summary of the fair value measurement for Surplus Assets. The 2018-19 position was:

Net Book Value (NBV) Level 1 Level 2 Level 3 Total £m £m £m £m

Land 0.000 0.831 8.107 8.938 Buildings 0.000 0.104 1.061 1.165 0.000 0.935 9.168 10.103

A summary of the Council’s Property, Plant and Equipment, Heritage Assets, Intangible Assets and Assets Held For Sale is included below, giving information as to the proportion of the closing value at 31 March 2020 which relates to assets held at historic cost and the proportion which relates to assets which have been revalued, and if so, the year of that revaluation under the Council’s five year rolling programme of physical revaluation. In addition to this physical formal revaluation programme, school assets are revalued each year based on a desk top review. The value of schools revalued in this way in 2019 is £663.940m.

54

NOTES TO THE CORE FINANCIAL STATEMENTS Land & Land Buildings Plant Vehicles, Equipment & Infrastructure Assets Community Assets Assets Surplus Under Assets Construction Plant Property Equipment & Assets Heritage 15 Note Intangible Assets 18 Note For Held Assets Sale 19 Note Total £m £m £m £m £m £m £m £m £m £m £m VALUATION At 31 March 2020 216.797 0.000 0.000 0.000 9.139 0.000 225.936 1.855 0.000 2.342 230.133 At 31 March 2019 267.615 0.000 0.000 0.000 0.000 0.000 267.615 0.067 0.000 0.000 267.682 At 31 March 2018 418.560 0.000 0.000 0.000 0.000 0.000 418.560 29.327 0.000 0.000 447.887 At 31 March 2017 265.611 0.000 0.000 0.000 0.000 0.000 265.611 0.000 0.000 0.000 265.611 At 31 March 2016 144.101 0.000 0.000 0.000 0.000 0.000 144.101 0.000 0.000 0.000 144.101 1,312.684 0.000 0.000 0.000 9.139 0.000 1,321.823 31.249 0.000 2.342 1,355.414

HISTORIC COST 0.078 13.944 342.243 4.469 0.000 70.337 431.071 18.321 1.529 0.000 450.921

CLOSING VALUE At 31 March 2020 1,312.762 13.944 342.243 4.469 9.139 70.337 1,752.894 49.570 1.529 2.342 1,806.335

55

NOTES TO THE CORE FINANCIAL STATEMENTS

15. NATURE AND SCALE OF HERITAGE ASSETS

The Council’s Heritage Assets are categorised as follows:

Monuments, Statues and Historic Buildings - the council owns various historic buildings, the most significant of which is Elvaston Castle, which was designed by James W yatt, in the gothic revival style, in the early 1800s. The castle is situated in approximately 321 acres of open parkland, woodland and historical gardens.

County Buildings – various heritage assets are held at County Buildings. These include a pair of crystal chandeliers, which once hung in the Assembly Rooms of the Buxton Crescent Building. Currently they are being renovated, before being re-hung in the recently refurbished Crescent Building. Also held at County buildings are pieces of silverware from the former Judges’ lodgings and some railway nameplates.

Archives and Local Studies Collection – this collection is proportioned approximately 80% archives and 20% local studies. A large photographic collection is held at the Modern Records Office. Also held are records of the magistrates’ court, county court, coroner's court, hospitals and NHS Trust. This is the only place of deposit for Derbyshire.

Museum Collection and Artefacts - the permanent galleries at Buxton Museum showcase the core collections, covering Peak District archaeology, geology, art and local history. There is a recreated study of the work of archaeologist Sir W illiam Boyd Dawkins, together with a fine art collection of mostly 19th and 20th century works in watercolours, oils and prints, including works by Brangwyn, Chagall, Chahine and their contemporaries. Also held at the museum is a mineral collection including Blue John, local specimens and cave deposits.

The table below shows the movement in Heritage Assets during the year:

56

NOTES TO THE CORE FINANCIAL STATEMENTS Monuments, and Statues Historic Buildings County Buildings and Archives Studies Local Collection Museum and Collection Artefacts Assets Heritage £m £m £m £m £m COST OR VALUATION At 1 April 2019 40.028 0.304 6.050 3.919 50.301 Additions 0.723 0.000 0.000 0.000 0.723 Disposals 0.000 0.000 0.000 0.000 0.000 Impairment losses/(reversals) through I&E (0.336) 0.000 0.000 0.000 (0.336) Revaluations 0.003 0.008 (0.800) (0.300) (1.089) Derecognition (0.029) 0.000 0.000 0.000 (0.029) At 31 March 2020 40.389 0.312 5.250 3.619 49.570 DEPRECIATION At 1 April 2019 0.000 0.000 0.000 0.000 0.000 At 31 March 2020 0.000 0.000 0.000 0.000 0.000 OPENING VALUE 40.028 0.304 6.050 3.919 50.301 CLOSING VALUE 40.389 0.312 5.250 3.619 49.570 NATURE OF ASSET HOLDING Purchased / Built 40.389 0.312 5.250 2.181 48.132 Donated 0.000 0.000 0.000 1.438 1.438 40.389 0.312 5.250 3.619 49.570

57

NOTES TO THE CORE FINANCIAL STATEMENTS

The 2018-19 position was: Monuments, and Statues Historic Buildings County Buildings and Archives Studies Local Collection Museum and Collection Artefacts Assets Heritage £m £m £m £m £m COST OR VALUATION At 1 April 2018 44.626 0.304 6.050 4.008 54.988 Additions 0.745 0.000 0.000 0.000 0.745 Disposals 0.000 0.000 0.000 0.000 0.000 Impairment losses/(reversals) through I&E (0.023) 0.000 0.000 (0.019) (0.042) Revaluations 0.016 0.000 0.000 (0.070) (0.054) Derecognition (5.336) 0.000 0.000 0.000 (5.336) At 31 March 2019 40.028 0.304 6.050 3.919 50.301 DEPRECIATION At 1 April 2018 0.005 0.000 0.000 0.000 0.005 Revaluations (0.005) 0.000 0.000 0.000 (0.005) At 31 March 2019 0.000 0.000 0.000 0.000 0.000 OPENING VALUE 44.631 0.304 6.050 4.008 54.993 CLOSING VALUE 40.028 0.304 6.050 3.919 50.301 NATURE OF ASSET HOLDING Purchased / Built 40.028 0.304 6.050 2.331 48.713 Donated 0.000 0.000 0.000 1.588 1.588 40.028 0.304 6.050 3.919 50.301

16. HERITAGE ASSETS NOT REPORTABLE IN THE BALANCE SHEET

W here the Council is unable to place a reliable fair value on Heritage Assets because of their nature, it is required to disclose them in accordance with the Code of Practice on Local Authority Accounting. Details of these Heritage Assets are set out below:

• Colliery Bridge, Shipley Country Park • Paul’s Arm Bridge, Shipley Country Park • Leawood River Aqueduct • Northern Retaining W alls and Loading Bay, Cromford W harf • Side W alls and Curbs to Canal Basin, Cromford W harf • Railway Embankment and Road Bridge, Steeple Grange, W irksworth • Grindlow Tower, Solomon’s Temple, Poole's Cavern Country Park, Buxton • W orkshops, Offices and Terminus at Cromford and High Peak Junction • Brittain Colliery Headstocks, Ripley • Brittain Colliery Engine House, Ripley

58

NOTES TO THE CORE FINANCIAL STATEMENTS

17. CAPITAL EXPENDITURE AND CAPITAL FINANCING

2018-19 2019-20 £m £m Capital Expenditure 21.738 Schools 18.490 0.186 Childrens Homes/Centres and Adult Education Centres 1.355 32.566 Roads and Highways Related 29.861 0.000 New W aste Treatment Facility (NW TF) 4.520 4.735 Purchase of Vehicles 3.304 1.370 Countryside 1.610 0.000 Chapel Culvert Structural W ork 0.947 0.618 Other Environmental 1.312 0.450 Community Services 0.115 4.220 Specialist and Extra Care Centres 6.532 0.923 Homes for Older People 1.060 0.120 Day Centres 0.018 0.037 Other Social Care and Services 0.004 0.000 Information Technology Hardware and Network 1.410 1.771 Software 0.299 17.713 Buxton Crescent 8.386 0.338 Other Corporate 0.746 0.000 Other 0.025 86.785 Total Capital Additions 79.994 (0.250) Local Authority Mortgage Scheme Repaid Deposit 0.000 15.117 Revenue Expenditure Funded from Capital Under Statute 23.255 101.652 Total Capital Expenditure 103.249 Capital Financing 35.805 Loans 48.900 10.932 Capital Receipts 7.833 54.915 Grants and Contributions 46.516 101.652 Total Capital Financing 103.249

59

NOTES TO THE CORE FINANCIAL STATEMENTS

2018-19 2019-20 £m £m 456.075 Opening Capital Financing Requirement (CFR) 487.215

Capital Investm ent 80.369 Property, Plant and Equipment 75.973 0.653 Intangible Assets 0.039 15.117 Revenue Expenditure Funded from Capital under Statute 23.255 (0.250) Local Authority Mortgage Scheme Repaid Deposit 0.000 5.763 Loan Buxton Crescent 3.982

Sources of Finance (10.932) Capital Receipts (7.833) (54.915) Government Grants and other Contributions (46.515) 0.000 Direct Revenue Contributions 0.000 (4.665) Statutory Minimum Revenue Provision (10.947)

487.215 Closing Capital Financing Requirement (CFR) 525.169

31.140 Movem ent in Year 37.954 Increase/(Decrease) in Underlying Need to Borrow (Unsupported by Government Financial Assistance)

18. INTANGIBLE ASSETS

Intangible assets relate to the purchase of software licences:

2018-19 2019-20 £m £m COST OR VALUATION At 1st April 8.000 8.781 Additions 0.653 0.038 Reclassifications 0.128 0.000 Disposals 0.000 (0.217) At 31st March 8.781 8.602 DEPRECIATION At 1st April (5.898) (6.532) Charge for year (0.634) (0.758) Disposals 0.000 0.217 At 31st March (6.532) (7.073) OPENING VALUE 2.102 2.249 CLOSING VALUE 2.249 1.529

60

NOTES TO THE CORE FINANCIAL STATEMENTS

19. ASSETS HELD FOR SALE

2018-19 2019-20 Carrying Value RR Carrying Value RR GBV Dpn NBV GBV Dpn NBV £m £m £m £m £m £m £m £m 0.793 (0.063) 0.730 0.337 At 1 April 2.173 (0.220) 1.953 0.590 (0.834) 0.104 (0.730) (0.337) Sales (0.791) 0.056 (0.735) (0.393) 2.214 (0.261) 1.953 0.590 Transfers 0.286 0.013 0.299 0.016 0.000 0.000 0.000 0.000 Other Movements 0.674 0.151 0.825 0.825 2.173 (0.220) 1.953 0.590 At 31 March 2.342 0.000 2.342 1.038

Assets must meet stringent criteria to be classified as Held for Sale rather than Surplus.

20. NON-CURRENT DEBTORS

31 Mar 2019 31 Mar 2020

£m Note £m 0.987 Transferred Debt 21 0.040 0.106 Other Long Term Debtors 21 0.129 1.093 Total Non Current Debtors 0.169

21. FINANCIAL INSTRUMENTS

Financial Assets comprise loans to other bodies, cash and short term deposits, investments in equity funds and receivables.

Current Financial Assets

Carrying Value Fair Value 31 Mar 2019 31 Mar 2020 31 Mar 2019 31 Mar 2020 £m £m £m £m Current Investments 145.999 81.805 145.999 81.805 Cash and Cash Equivalents 41.659 74.159 41.659 74.159 Trade Debtors 24.268 25.621 24.268 25.621 Current Financial Assets 211.926 181.585 211.926 181.585

61

NOTES TO THE CORE FINANCIAL STATEMENTS

Non-Current Financial Assets

Fair Carrying Value Fair Value Value 31 Mar 2019 31 Mar 2020 31 Mar 2019 31 Mar 2020 Note Level £m £m £m £m Non-Current Transferred Debt 20 2 0.987 0.040 0.987 0.040 Pooled Investment Funds 1 68.244 59.892 68.244 59.892 Loan to Buxton Crescent 3 6.911 10.163 8.191 12.697 Other Non-Current Investments 2 23.510 15.877 23.809 15.151 Non-Current Trade Debtors 20 * 0.106 0.129 0.106 0.129 Non-Current Financial Assets 99.758 86.101 101.337 87.909 * Fair value disclosure not required

The Non-Current Investments balance includes the Council’s holdings in pooled investment funds.

Financial Assets by Measurement Classification

Carrying Value Fair Value 31 Mar 2019 31 Mar 2020 31 Mar 2019 31 Mar 2020 £m £m £m £m Amortised Costs 243.440 207.794 245.019 209.602 Fair Value through Profit or Loss 68.244 59.892 68.244 59.892 Total Financial Assets 311.684 267.686 313.263 269.494

At 31 March 2020 there was one non-current investment in the balance sheet with a carrying value in excess of £15.000m: • CCLA Mutual Investment Trust Property Fund, with a fair value, based on closing bid price at 31 March 2020, of £23.243m (original investment £25.000m). This investment is open ended but can usually be realised on a monthly basis (however, this investment is currently suspended because of the Covid-19 pandemic).

Transferred Debt and Long Term Trade Debtors are not quoted on active markets meaning that fair value cannot be accurately calculated. As such they have been reported at carrying value.

Financial Assets Measured at Fair Value through Profit or Loss (FVPL)

The following financial assets are pooled investment funds which the Council has measured at FVPL. The Council’s pooled investment funds are traded on active markets, for which the Council can access the measurement data. The fair values of these funds are determined by the closing bid prices at 31 March 2020. The fair values of the Council’s deposits and the loans it has made are determined with reference to the principal, term, rate and timing of the interest and the borrower’s credit rating. It is the Council’s intention to hold these assets for the medium to long term to earn investment income and for capital appreciation.

62

NOTES TO THE CORE FINANCIAL STATEMENTS

Carrying Value Fair Value Financial Assets measured at FVPL 31 Mar 2019 31 Mar 2020 31 Mar 2019 31 Mar 2020 £m £m £m £m CCLA - LA Property Fund 24.106 23.243 24.106 23.243 CCLA Diversified Income Fund 4.969 4.523 4.969 4.523 Investec Diversified Income Fund 9.828 8.905 9.828 8.905 Kames - Diversified Income Fund 10.114 8.519 10.114 8.519 M&G - Optimal Income Fund 4.865 4.435 4.865 4.435 M&G - Global Dividend Fund 4.961 3.990 4.961 3.990 Schroder - Income Maximiser Fund 9.401 6.277 9.401 6.277 Total 68.244 59.892 68.244 59.892

The Council holds 75,000 £1 ordinary shares (17% share) in the Local Authority controlled Scape Group (Ltd). The value of this holding is small and there are conditions on the shares that prevent them from being traded on the open market. The Council does not consider the value to be material and therefore no value is carried on the Council’s Balance Sheet.

There have been no financial assets measured at FVPL which have been derecognised in the year ended 31 March 2020.

Dividend Income

Dividend income from the Council’s investments in equity instruments and pooled investment funds has been recognised as follows:

2018-19 2019-20 £m £m From Investments Derecognised 0.000 0.000 CCLA - LA Property Fund 1.019 1.042 CCLA Diversified Income Fund 0.207 0.169 Investec Diversified Income Fund 0.406 0.440 Kames - Diversified Income Fund 0.254 0.500 M&G - Optimal Income Fund 0.162 0.136 M&G - Global Dividend Fund 0.120 0.169 Schroder - Income Maximiser Fund 0.373 0.717 Scape Group Limited shares 0.200 0.400 From Investments Held at Year End 2.741 3.573

Total Dividends Received 2.741 3.573

Financial Instrument Liabilities comprise loans and borrowings, PFI liabilities, finance lease liabilities and other liabilities at contract amounts.

63

NOTES TO THE CORE FINANCIAL STATEMENTS

Current Financial Liabilities

Carrying Value Fair Value 31 Mar 2019 31 Mar 2020 31 Mar 2019 31 Mar 2020 £m £m £m £m Transferred Debt (0.010) (0.006) (0.010) (0.006) Public W orks Loan Board (9.150) (4.575) (9.150) (4.575) Temporary Loans (26.500) (52.500) (26.500) (52.500) Accrued Interest (1.914) (1.926) (1.914) (1.926) Current Loans and Borrowing (37.574) (59.007) (37.574) (59.007) Trade Creditors (91.288) (78.804) (91.288) (78.804) PFI liability (3.759) (3.956) (7.063) (6.988) Finance lease liability (0.344) (0.369) (0.344) (0.369) Current Financial Liabilities (132.965) (142.136) (136.269) (145.168)

Non-Current Financial Liabilities

Fair Carrying Value Fair Value Value 31 Mar 2019 31 Mar 2020 31 Mar 2019 31 Mar 2020

Note Level £m £m £m £m Transferred Debt 2 (0.161) (0.155) (0.161) (0.155) Public W orks Loan Board 2 (230.340) (226.847) (349.058) (347.472) Other Long Term Loans 2 (15.574) (15.563) (21.535) (21.985) Non-Current Borrowing (246.075) (242.565) (370.754) (369.612) PFI liability 27 3 (63.710) (59.753) (75.014) (66.179) Finance lease liability 27 * (5.009) (4.640) (5.009) (4.640)

Non-Current Financial Liabilities (314.794) (306.958) (450.777) (440.431) * Fair value disclosure not required

Financial Liabilities by Measurement Classification

Carrying Value Fair Value 31 Mar 2019 31 Mar 2020 31 Mar 2019 31 Mar 2020 £m £m £m £m Amortised Costs (447.759) (449.094) (587.046) (585.599) Fair Value through Profit or Loss 0.000 0.000 0.000 0.000 Total Financial Liabilities (447.759) (449.094) (587.046) (585.599)

The Council has 50 loans with the Public W orks Loan Board (PW LB) at 31 March 2020. The start date of the earliest of these PW LB loans was September 1995. This loan is for a period of 24 years. The most recent start date was November 2007, for a period of 30 years. During the year, one loan with the PW LB was repaid. The average loan rate across the loans is 4.62%. The average discount rate is 1.93%.

At 31 March 2020 the Council held one LOBO loan and two other long term loans (Barclays waived their LOBO options in June 2016):

64

NOTES TO THE CORE FINANCIAL STATEMENTS

• £5.000m Dexia LOBO loan, commencing in August 2004, for 35 years, at a fixed rate of 4.5%. The fair value is £7.059m, using a discount rate of 2.023%. • £5.000m Barclays loan commencing in October 2003, for 40 years, with an introductory rate of 3.2% for four years, then 4.875% thereafter. The carrying value of the loan at 31 March 2020 is £5.347m and the fair value is £7.653m, using a discount rate of 2.127%. • £5.000m Barclays loan, commencing in February 2005, for 40 years, with an introductory interest rate of 3.7% for four years, then 4.5% thereafter. A discount of £0.103m applied at the commencement of the loan. The carrying value of the loan at 31 March 2020 is £5.216m and the fair value is £7.273m, using a discount rate of 2.154%.

PFI and Finance Lease Liabilities are not quoted on active markets. The discounted cash flow method has been used to calculate the fair value of PFI liabilities. Refer to Note 46 for further details. The average interest rate across the Council’s 18 finance leases is 10.79%. Refer to Note 45 for further details.

Interest Income and Expenditure

The following income and expenditure have been recognised in the CIES in relation to interest on financial instruments:

Incom e/(Expense) 2018-19 2019-20 £m £m Interest Income 2.799 2.356 Interest Expense (19.339) (18.420) Net Interest Income/(Expense) (16.540) (16.064)

Financial Instrument Gains/Losses

The following gains and losses have been recognised in the CIES in relation to the carrying value of the Council’s financial assets:

Net Gains/(Losses) Financial Assets 2018-19 2019-20 £m £m Amortised Costs (1.562) (3.999) Fair Value through Profit or Loss (1.453) (8.352) FVOCI - Gains/Losses Recognised in Other Comprehensive Income 0.000 0.000 FVOCI - Accumulated Gains/Losses Reclassified to Surplus Deficit on Provision of Service 0.000 0.000 Total Gains/(Losses) (3.015) (12.351)

65

NOTES TO THE CORE FINANCIAL STATEMENTS

Losses arising from financial assets measured at amortised cost relate to impairment of these assets, including write-off of irrecoverable trade debt and movement in the allowances for loss due to default on these assets. The loan advances to Buxton Crescent Hotel and Thermal Spa Company Ltd meet the definition of capital expenditure under statutory provisions, therefore the movement in the loss allowance for default provided for these advances has been reversed out to the Capital Adjustment Account.

Losses from financial assets measured at Fair Value through Profit or Loss (FVPL) relate to movements in the fair value of the Council’s investments in pooled investment funds. These losses have been reversed out to the Financial Instruments Adjustment Account as required by the statutory temporary override MHCLG has issued. The override is effective for financial years 2018-19 to 2022-23.

There are no gains or losses from financial assets measured at Fair Value through Other Comprehensive Income (FVOCI).

The following losses arose on derecognition from Financial Assets measured at amortised cost.

2018-19 2019-20 Gains (Losses) Gains (Losses) £m £m £m £m Loan to Derbyshire Developments Ltd 0.000 0.000 0.000 (0.515) Gains/(Losses) on Derecognition 0.000 0.000 0.000 (0.515)

The Council had provided a start-up loan to Derbyshire Developments Limited to cover running costs such as staffing, accommodation, IT and audit, up until the point where income would recover these fixed costs of being “in business”. As part of its recent plans to transform the delivery model of its property and estates management functions, the Council approved the wind-up of the Derbyshire Developments Limited on 16 March 2020, at which time the balance on the loan was £0.528m. This loan has been written off and the company’s remaining assets of £0.013m in cash were recovered by the Council.

There have been no gains or losses recognised in the CIES in relation to the carrying value of the Council’s financial liabilities.

Fee Income and Expenses

Income/(Expense) 2018-19 2019-20 £m £m Fees From Instruments not at FVPL (0.036) (0.051) Fees From Investing Activities on Behalf of Other Parties 0.028 0.028 Net Fee Income/(Expense) (0.008) (0.023)

66

NOTES TO THE CORE FINANCIAL STATEMENTS

The Council incurred £0.051m in brokerage fees to execute transactions relating to new loans the Council took out; all these loans had a term of one year or less. £0.028m of income was earned from banking and treasury management services provided to the Derbyshire Pension Fund and Local Enterprise Partnership (LEP) for Derby, Derbyshire, Nottingham and Nottinghamshire.

Financial Instruments – Fair Values

Financial assets which do not give rise to cash flows which are solely payments of principal and interest, or where it is not the Council’s intention to hold those assets to collect the contractual cash flows, are carried in the Balance Sheet at fair value. For most assets, including bonds, treasury bills and shares in money market funds and other pooled funds, the fair value is taken from the market price. The fair values of other instruments have been estimated by calculating the net present value of the remaining contractual cash flows at 31 March 2020, using the following methods and assumptions: • Certificates of deposit and forward loan contracts have been discounted at market interest rates for instruments of similar credit quality and remaining term to maturity.

Financial assets classified as loans and receivables and all non-derivative financial liabilities are carried in the Balance Sheet at amortised cost. Their fair values have been estimated by calculating the net present value of the remaining contractual cash flows at 31 March 2020, using the following methods and assumptions: • Loans borrowed by the Council have been valued by discounting the contractual cash flows over the whole life of the instrument at the appropriate market rate for local authority loans. • The value of LOBO loans have been increased by the value of the embedded options. Lenders’ options to propose an increase to the interest rate on the loan have been valued according to a proprietary model for Bermudan cancellable swaps. Borrower’s contingent options to accept the increased rate or repay the loan have been valued at zero, on the assumption that lenders will only exercise their options when market rates have risen above the contractual loan rate. • The fair values of other long-term loans and investments have been discounted at the market rates for similar instruments with similar remaining terms to maturity on 31 March. • The fair values of finance lease assets and liabilities and of PFI scheme liabilities have been calculated by discounting the contractual cash flows (excluding service charge elements) at the appropriate AA-rated corporate bond yield. • The fair value of short-term instruments, including trade payables and receivables, is assumed to approximate to the carrying amount.

Fair values are split by their level in the fair value hierarchy: • Level 1 – fair value is only derived from quoted prices in active markets for identical assets or liabilities, e.g. bond prices • Level 2 – fair value is calculated from inputs other than quoted prices that are observable for the asset or liability, e.g. interest rates or yields for similar instruments

67

NOTES TO THE CORE FINANCIAL STATEMENTS

• Level 3 – fair value is determined using unobservable inputs, e.g. non-market data such as cash flow forecasts or estimated creditworthiness.

22. INVENTORIES

2018-19 2019-20 Highways Other Highways Other £m £m £m £m 1 April 1.048 1.018 1.009 1.203 Purchase of new stock 1.433 2.339 1.058 2.459 Stock issued (1.472) (2.139) (1.386) (2.357) Stock written off 0.000 (0.015) 0.000 (0.009) 31 March 1.009 1.203 0.681 1.296

Total 2.212 1.977

23. CURRENT DEBTORS

The current debtor balance can be analysed into the following categories:

31 Mar 2019 31 Mar 2020 £m £m 8.491 From Other Local Authorities 10.468 6.038 From NHS Bodies 5.160 8.915 From Government Departments 9.842 0.000 From DCC Pension Fund 1.056 54.047 From Other Sundry Debtors 47.091 77.491 Total amount owed to the Council 73.617 0.107 To Other Local Authorities 0.042 0.005 To Government Departments 0.029 5.213 To Other Sundry Debtors 7.610 5.325 Total paid in advance by the Council 7.681 82.816 Total Current Debtors 81.298 (2.711) Less Allowance for Bad Debts (5.165) 80.105 Carrying Value of Current Debtors 76.133

68

NOTES TO THE CORE FINANCIAL STATEMENTS

24. CASH AND CASH EQUIVALENTS

31 Mar 2019 31 Mar 2020 £m £m 25.726 County Fund Bank Account Balance 1.387 25.726 Cash Book for County Fund Account 1.387 1.424 Schools Cash Income Account Balance 0.545 1.424 Cash Book for Schools Cash Account 0.545 27.150 Total Cash Book Balance 1.932 2.442 Amounts held by Bank Account Schools 2.808 0.193 Amounts held in Petty Cash Tins 0.512 0.370 Amounts held in Imprest Bank Accounts 0.390 (0.002) Amounts held in Other Bank Accounts 0.000 30.153 Total Cash Balance 5.642 1.519 Bank instant-access deposit accounts 1.003 0.000 Money Market Funds 17.502 10.028 Short-term deposits 50.014 (0.041) Cash investment loss allowance (0.002) 41.659 Total Cash and Cash Equivalents 74.159

25. CREDITORS

The creditor balance can be analysed into the following categories:

31 Mar 2019 31 Mar 2020 £m £m (7.224) To Other Local Authorities (7.026) (2.258) To NHS Bodies (3.583) (17.199) To Government Departments (18.357) (3.899) To Inter-Group Organisations 0.000 (88.655) To Other Sundry Creditors (74.028) (119.235) Amounts Owing by the Council (102.994) (0.697) From Other Local Authorities (0.807) (3.089) From NHS Bodies (1.836) (3.035) From Government Departments (32.081) (3.876) From Other Sundry Creditors (5.019) (10.697) Income in Advance to the Council (39.743) (129.932) Carrying Value of Creditors (142.737)

69

NOTES TO THE CORE FINANCIAL STATEMENTS

26. PROVISIONS

Insurance Fund Insurance Packages Exit Other Total £m £m £m £m 1 April 2018 7.203 4.277 1.081 12.561 New Provisions 2.361 0.000 3.356 5.717 Utilisation of Provision (2.064) (0.857) (0.588) (3.509) Reversal of Provision 0.000 0.000 (0.196) (0.196) 1 April 2019 7.500 3.420 3.653 14.573 New Provisions 2.076 1.899 3.181 7.156 Utilisation of Provision (2.366) (3.478) (3.356) (9.200) Reversal of Provision 0.000 0.000 (0.297) (0.297) 31 March 2020 7.210 1.841 3.181 12.232

Provision for Exit Packages Estimated costs associated with future voluntary redundancies include an element for schools. The provision has been created on a global estimation of the cuts required to achieve the savings targets. There is uncertainty around which employees will leave the Council and at what time, which will determine the true cost.

Cash outflows are expected to be £0.639m each year from 2019-20 to 2021-22.

Insurance Fund Provision The Insurance Fund meets the estimated ‘excess’ of the Council’s insurance policies, with amounts held in either the insurance provision or the insurance reserve. The total Insurance Fund balance is £27.295m (31 March 2019: £27.570m). The provision of £7.210m represents obligations as at 31 March as a result of past claims. The reserve balance of £20.085m represents the Council’s self-insurance risk premium.

Cash outflows are expected to average just over £2.000m each year for the next three to four years.

Other Provisions At 31 March 2020 £2.536m was provided for a refund expected to be payable to the NHS for income recognised relating to Continuing Healthcare and £0.645m was provided for outstanding post-16 payments to colleges where the timing and amount of the payments is not yet known.

The timing of the cash outflows is not expected to be later than one year from 31 March 2020.

70

NOTES TO THE CORE FINANCIAL STATEMENTS

27. OTHER NON-CURRENT LIABILITIES

31 Mar 2019 31 Mar 2020 £m £m (870.546) Pensions Liability - LGPS (651.283) (64.712) Pensions Liability - Teachers (55.041) (16.115) PFI Phase 1 (14.782) (20.764) PFI Phase 2 (19.542) (26.831) PFI - BSF (25.430) (2.945) Finance Lease - Joint Service Centre (2.887) (2.065) Finance Lease - Other Leases (1.753)

(1,003.978) (770.718)

Further information about the leases, PFI scheme and pension liabilities can be found in notes 45 to 48.

28. USABLE RESERVES

Usable reserves relate to cash backed reserves that are available to finance future services or capital expenditure. Below are details of the Council’s usable reserves and their purpose:

• General Reserve – revenue reserves available for future service delivery. • Revenue Earmarked Reserves – revenue reserves available for future service delivery, however future spending pressures have been identified for which they will be used. • Usable Capital Receipts – proceeds from the sale of Property, Plant and Equipment assets which are available to finance future capital developments. • Capital Grants Unapplied – unused grant receipts for capital developments.

Details of the Council’s usable reserves can be found in the Movement in Reserves Statement and Notes 13 and 29.

29. TRANSFERS TO / FROM EARMARKED RESERVES

1 Apr Transfers 31 Mar Transfers 31 Mar 2018 In Out 2019 In Out 2020 £m £m £m £m £m £m £m Adult Care Older People's Housing Strategy 0.000 (22.676) 0.000 (22.676) (7.324) 0.000 (30.000) Pump priming (0.771) 0.000 0.771 0.000 (5.966) 2.159 (3.807) Other reserves (3.411) (0.098) 3.226 (0.283) (0.016) 0.253 (0.046) Sub Total (4.182) (22.774) 3.997 (22.959) (13.306) 2.412 (33.853)

71

NOTES TO THE CORE FINANCIAL STATEMENTS

1 Apr Transfers 31 Mar Transfers 31 Mar 2018 In Out 2019 In Out 2020 £m £m £m £m £m £m £m Corporate Services (formerly Council Services) Revenue Contributions to Capital (6.533) (17.081) 6.533 (17.081) (11.703) 0.489 (28.295) Loan Modification Gains/Losses 0.000 (29.224) 0.784 (28.440) 0.000 2.316 (26.124) Insurance and Risk Management (20.627) (0.086) 0.643 (20.070) (0.143) 0.128 (20.085) Budget Management (20.850) (22.282) 12.340 (30.792) (0.187) 14.548 (16.431) Business Rates Relief Grant 0.000 0.000 0.000 0.000 (5.000) 0.000 (5.000) Planned Building Maintenance (6.517) (1.200) 1.435 (6.282) (1.008) 2.015 (5.275) Business Rates Pool (1.471) (4.716) 1.471 (4.716) 0.000 0.044 (4.672) Prior Year Underspends (4.194) (0.084) 3.757 (0.521) (4.035) 0.570 (3.986) Uninsured Financial Loss (13.000) 0.000 9.500 (3.500) 0.000 0.000 (3.500) Computer Purchasing (4.923) (0.100) 1.808 (3.215) (0.570) 0.957 (2.828) Property Insurance Maintenance Pool (4.286) (1.560) 3.010 (2.836) (1.553) 1.676 (2.713) PFI reserves (1.591) (0.497) 0.107 (1.981) (0.420) 0.060 (2.341) Property DLO (2.955) (1.693) 2.947 (1.701) (2.324) 1.915 (2.110) Change Management (4.133) (0.097) 1.851 (2.379) 0.000 0.572 (1.807) Business Rates Strategic Investment Fund 0.000 (4.889) 0.000 (4.889) (0.961) 4.837 (1.013) Other reserves (4.224) (3.744) 1.267 (6.701) (2.796) 3.862 (5.635) Sub Total (95.304) (87.253) 47.453 (135.104) (30.700) 33.989 (131.815) Clean Growth and Regeneration (formerly Economic Development and Regeneration) D2 Growth Fund (0.200) 0.000 0.000 (0.200) 0.000 0.000 (0.200) Markham Environment Centre (0.115) 0.000 0.001 (0.114) 0.000 0.000 (0.114) Other reserves (0.673) (0.009) 0.163 (0.519) (0.013) 0.150 (0.382) Sub Total (0.988) (0.009) 0.164 (0.833) (0.013) 0.150 (0.696) Health and Com m unities Public Health Grant (6.811) (2.790) 2.000 (7.601) 0.000 0.177 (7.424) Domestic Abuse 0.000 (2.000) 0.000 (2.000) (0.142) 0.000 (2.142) S256/External Funding (0.343) 0.000 0.089 (0.254) 0.000 0.010 (0.244) Trusted Trader (0.016) (0.057) 0.002 (0.071) (0.030) 0.000 (0.101) Other reserves (0.347) (0.040) 0.021 (0.366) (0.076) 0.089 (0.353) Sub total (7.517) (4.887) 2.112 (10.292) (0.248) 0.276 (10.264) Highways, Transport and Infrastructure Prior Year Underspends (6.055) (3.691) 0.460 (9.286) (1.453) 0.929 (9.810) W inter Maintenance (2.000) 0.000 0.000 (2.000) 0.000 0.000 (2.000) Commuted Highways Maintenance (0.136) 0.000 0.015 (0.121) (1.016) 0.000 (1.137) Road Safety Public Service Agreement (PSA) (1.217) 0.000 0.035 (1.182) 0.000 0.103 (1.079) Derby and Derbyshire Road Safety Partnership Reserve (0.805) (0.027) 0.247 (0.585) (0.132) 0.085 (0.632) W aste Recycling Initiatives (0.391) 0.000 0.000 (0.391) (0.207) 0.000 (0.598) IT Reserve (0.554) (0.110) 0.105 (0.559) 0.000 0.036 (0.523) Other reserves (8.300) (0.998) 3.689 (5.609) (0.233) 4.382 (1.460) Sub Total (19.458) (4.826) 4.551 (19.733) (3.041) 5.535 (17.239)

72

NOTES TO THE CORE FINANCIAL STATEMENTS

1 Apr Transfers 31 Mar Transfers 31 Mar 2018 In Out 2019 In Out 2020 £m £m £m £m £m £m £m Strategic Leadership, Culture and Tourism Policy & Research (1.292) 0.000 0.238 (1.054) 0.000 0.339 (0.715) Community Managed Libraries 0.000 0.000 0.000 0.000 (0.742) 0.000 (0.742) Derbyshire Challenge Fund (0.678) (0.192) 0.304 (0.566) (0.084) 0.119 (0.531) Library Restructure 0.000 (0.429) 0.000 (0.429) 0.000 0.000 (0.429) Derwent Valley Mills W orld Heritage Site (0.217) 0.000 0.024 (0.193) (0.016) 0.033 (0.176) Other reserves (3.089) (0.075) 1.655 (1.509) (0.029) 0.968 (0.570) Sub Total (5.276) (0.696) 2.221 (3.751) (0.871) 1.459 (3.163) Young People Schools Balances (31.303) (5.406) 10.666 (26.043) (5.595) 7.741 (23.897) Tackling Troubled Families (4.161) (2.831) 2.909 (4.083) (1.960) 2.149 (3.894) Standards Fund (Schools) (1.540) 0.000 0.320 (1.220) 0.000 0.494 (0.726) School Rates Refunds (0.399) (0.201) 0.000 (0.600) (0.121) 0.000 (0.721) Childrens Services IT Systems (0.853) 0.000 0.107 (0.746) 0.000 0.040 (0.706) Youth Activity Grants (0.375) 0.000 0.045 (0.330) 0.000 0.047 (0.283) Foster Carer Adaptations (0.406) (0.025) 0.169 (0.262) (0.163) 0.130 (0.295) Dedicated Schools Grant (DSG) (10.036) (0.079) 4.512 (5.603) (1.943) 7.359 (0.187) Other reserves (5.778) (1.007) 4.891 (1.894) (0.603) 1.097 (1.400) Sub Total (54.851) (9.549) 23.619 (40.781) (10.385) 19.057 (32.109) Overall Totals (187.576) (129.994) 84.117 (233.453) (58.564) 62.878 (229.139)

30. UNUSABLE RESERVES

The balance of unusable reserves is made up of a number of adjustment accounts, none of which are available to finance future spending. The reserves that make up the balance are detailed below.

31 Mar 2019 31 Mar 2020

£m £m 826.988 Revaluation Reserve 767.817 605.363 Capital Adjustment Account 521.130 (5.351) Financial Instruments Adjustment Account (5.107) (1.756) Pooled Investments Adjustment Account (10.108) 0.655 Deferred Capital Receipts Reserve 0.824 (935.258) Pensions Reserve (706.324) 2.741 Collection Fund Adjustment Account 5.822 (7.950) Accumulated Absences Account (6.452) 485.432 Balance at 31 March 567.602

73

NOTES TO THE CORE FINANCIAL STATEMENTS

The movements in unusable reserves in 2019-20 are detailed below.

Unusable reserves Absences Narrative Note Capital Deferred Receipts Revaluation Reserve Capital Adjustment Account Pooled Investments Adjustment Account Financial Instruments Adjustment Account Accumulated Account Fund Collection Adjustment Account Reserve Pensions Unusable Total Reserves £m £m £m £m £m £m £m £m £m

BALANCE AT 31 MARCH 2019 (0.655) (826.988) (605.363) 1.756 5.351 7.952 (2.740) 935.258 (485.429)

Comprehensive Income & Expenditure 0.000 (48.786) 0.000 0.000 0.000 0.000 0.000 (300.934) (349.720) Adjustments between accounting basis and funding basis

Depreciation of Non-Current Assets 14 0.000 15.735 26.867 0.000 0.000 0.000 0.000 0.000 42.602

Impairment of Non-Current Assets 14 0.000 0.000 12.055 0.000 0.000 0.000 0.000 0.000 12.055

Application of Capital Grants credited to the CIES 39 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Disposal of Non-Current Assets 14 (0.176) 92.222 86.146 0.000 0.000 0.000 0.000 0.000 178.192 Revenue Expenditure Funded from Capital Under Statute 0.000 0.000 23.254 0.000 0.000 0.000 0.000 0.000 23.254 Amount by which officer remuneration charged to the CIES on an accruals basis is different from remuneration chargeable in the year in accordance with statutory requirements 0.000 0.000 0.000 0.000 0.000 (1.498) 0.000 0.000 (1.498) Amount by which Council Tax and Business Rates income credited to the CIES is different from Council Tax and Business Rates income calculated for the year in accordance with statutory requirements 0.000 0.000 0.000 0.000 0.000 0.000 (3.081) 0.000 (3.081)

74

NOTES TO THE CORE FINANCIAL STATEMENTS

Reversal of items relating to retirement benefits debited or credited to the CIES 48 0.000 0.000 0.000 0.000 0.000 0.000 0.000 132.696 132.696 Statutory provision for the financing of capital investment 0.000 0.000 (10.948) 0.000 0.000 0.000 0.000 0.000 (10.948) Principal repayments of transferred debt 0.000 0.000 0.068 0.000 0.000 0.000 0.000 0.000 0.068 Capital expenditure charged in the year to the General Reserve 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 Reversal of gains/losses on pooled investment funds measured at FVPL charged to the CIES 21 0.000 0.000 0.000 8.352 0.000 0.000 0.000 0.000 8.352 Amount by which finance costs (proportion of previous years' premiums) charged to the CIES are different from finance costs chargeable in the year in accordance with statutory requirements 21 0.000 0.000 0.000 0.000 (0.244) 0.000 0.000 0.000 (0.244) Amount by which finance costs (capital loan impairments) charged to the CIES are different from finance costs chargeable in the year in accordance with statutory requirements 21 0.000 0.000 1.139 0.000 0.000 0.000 0.000 0.000 1.139 Employer's pension contributions and direct payments to pensioners payable in the year 48 0.000 0.000 0.000 0.000 0.000 0.000 0.000 (60.696) (60.696) Capital receipts from Finance Lease Debtors 46 0.007 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.007 Financing of capital expenditure 17 0.000 0.000 (54.350) 0.000 0.000 0.000 0.000 0.000 (54.350) Adjustments between accounting basis and funding basis (0.169) 107.957 84.231 8.352 (0.244) (1.498) (3.081) 72.000 267.548 Reserves movements Transfer to Earmarked Reserves 29 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 Transfer from Earmarked Reserves 29 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 Total m ovem ents (0.169) 107.957 84.231 8.352 (0.244) (1.498) (3.081) 72.000 267.548

BALANCE AT 31 MARCH 2020 (0.824) (767.817) (521.132) 10.108 5.107 6.454 (5.821) 706.324 (567.601)

75

NOTES TO THE CORE FINANCIAL STATEMENTS

The movements in unusable reserves in 2018-19 are detailed below.

Unusable reserves Note Capital Deferred Receipts Revaluation Reserve Capital Adjustment Account Pooled Investments Adjustment Account Financial Instruments Adjustment Account Accumulated Account Fund Collection Adjustment Account Reserve Pensions Unusable Total Reserves Narrative Absences £m £m £m £m £m £m £m £m £m

BALANCE AS AT 1 APRIL 2018 0.000 (1,066.765) (721.854) 0.000 5.549 6.492 (0.833) 698.836 (1,078.575)

Comprehensive Income & Expenditure 0.000 99.260 0.000 0.000 0.000 0.000 0.000 169.099 268.359 Adjustments between accounting basis and funding basis Depreciation of Non-Current Assets 14 0.000 16.561 26.008 0.000 0.000 0.000 0.000 0.000 42.569 Impairment of Non-Current Assets 14 0.000 0.000 30.544 0.000 0.000 0.000 0.000 0.000 30.544 Application of Capital Grants credited to the CIES 39 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 Disposal of Non-Current Assets 14 (0.664) 123.956 115.256 0.000 0.000 0.000 0.000 0.000 238.548 Revenue Expenditure Funded from Capital Under Statute 0.000 0.000 15.117 0.000 0.000 0.000 0.000 0.000 15.117 Amount by which officer remuneration charged to the CIES on an accruals basis is different from remuneration chargeable in the year in accordance with statutory requirements 0.000 0.000 0.000 0.000 0.000 1.460 0.000 0.000 1.460 Amount by which Council Tax and Business Rates income credited to the CIES is different from Council Tax and Business Rates income calculated for the year in accordance with statutory requirements 0.000 0.000 0.000 0.000 0.000 0.000 (1.907) 0.000 (1.907)

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NOTES TO THE CORE FINANCIAL STATEMENTS

Reversal of items relating to retirement benefits debited or credited to the CIES 48 0.000 0.000 0.000 0.000 0.000 0.000 0.000 126.372 126.372

Statutory provision for the financing of capital investment 0.000 0.000 (4.665) 0.000 0.000 0.000 0.000 0.000 (4.665) Principal repayments of transferred debt 0.000 0.000 0.078 0.000 0.000 0.000 0.000 0.000 0.078 Capital expenditure charged in the year to the General Reserve 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 Reversal of gains/losses on pooled investment funds measured at FVPL charged to the CIES 21 0.000 0.000 0.000 1.756 0.000 0.000 0.000 0.000 1.756 Amount by which finance costs (proportion of previous years premiums) charged to the CIES are different from finance costs chargeable in the year in accordance with statutory requirements 21 0.000 0.000 0.000 0.000 (0.198) 0.000 0.000 0.000 (0.198) Amount by which finance costs (reversal of effective interest rate) charged to the CIES are different from finance costs chargeable in the year in accordance with statutory requirements 21 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 Employer's pension contributions and direct payments to pensioners payable in the year 48 0.000 0.000 0.000 0.000 0.000 0.000 0.000 (59.049) (59.049) Capital receipts from Finance Lease Debtors 46 0.009 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.009 Financing of capital expenditure 17 0.000 0.000 (65.847) 0.000 0.000 0.000 0.000 0.000 (65.847) Total m ovem ents (0.655) 140.517 116.491 1.756 (0.198) 1.460 (1.907) 67.323 324.787

BALANCE AT 31 MARCH 2019 (0.655) (826.988) (605.363) 1.756 5.351 7.952 (2.740) 935.258 (485.429)

77

NOTES TO THE CORE FINANCIAL STATEMENTS

Revaluation Reserve The reserve contains only revaluation gains accumulated since 1 April 2007, this being the date that the reserve was created. Accumulated gains arising before that date are consolidated into the balance in the Capital Adjustment Account. Carrying Value Revaluation Reserve

Note £m £m 31 March 2020 Property, Plant and Equipment 14 1,752.894 722.003 Heritage Assets 15 49.570 44.776 Assets Held for Sale 19 2.341 1.038 1,804.805 767.817 31 March 2019 Property, Plant and Equipment 14 1,860.060 780.534 Heritage Assets 15 50.301 45.864 Assets Held for Sale 19 1.953 0.590

1,912.314 826.988

Capital Adjustment Account This reserve includes timing differences arising between the financing of purchasing new, or enhancing, Council assets and the utilising of those assets in the Council’s accounts (known as depreciation). It is not available for future spending.

Financial Instruments Adjustment Account The Financial Instruments Adjustment Account absorbs the timing differences arising from the different arrangements for accounting for income and expenses relating to certain financial instruments and for bearing losses or benefitting from gains per statutory provisions. The Council uses the account to manage premiums paid and discounts received on early redemption of loans. Premiums are debited and discounts are credited to the Comprehensive Income and Expenditure Statement when they are incurred, but reversed out of General Reserve to the account in the Movement in Reserves Statement. Over time, the expense is posted back to General Reserve in accordance with statutory arrangements for spreading the burden on Council Tax. In the Council’s case, the balance on the Account at 31 March will be charged to the General Reserves over the next 40 years.

Pooled Investments Adjustment Account The Pooled Investments Adjustment Account contains the cumulative gains and losses relating to the valuation of financial assets held at Fair Value through Profit or Loss in accordance with the temporary statutory override MHCLG has issued, effective for financial years 2018-19 to 2022-23.

78

NOTES TO THE CORE FINANCIAL STATEMENTS

Deferred Capital Receipts Reserve The Deferred Capital Receipts Reserve holds the gains recognised on the disposal of non-current assets but for which cash settlement has yet to take place. Under statutory arrangements, the Council does not treat these gains as usable for financing new capital expenditure until they are backed by cash receipts. W hen the deferred cash settlement eventually takes place, amounts are transferred to the Capital Receipts Reserve.

Pensions Reserve The Pensions Reserve absorbs the timing differences from the different arrangements for accounting for post-employment benefits and funding benefits in accordance with statute. The Council accounts for post-employment benefits in the Comprehensive Income and Expenditure Statement as benefits are earned by employees, updating the liabilities to reflect inflation, changing assumptions and investment returns on any resources set aside to meet the costs. However, statutory arrangements require a benefit earned to be financed as the Council makes employer’s contributions or pays any pensions for which it is directly responsible. The debit balance on the Reserve therefore shows a shortfall in the benefits earned by employees and the resources the Council has set aside to meet them. The statutory arrangements will ensure that funding will have been set aside by the time the benefits come to be paid.

Collection Fund Adjustment Account The Collection Fund Adjustment Account manages the differences arising from the recognition of Council Tax and Business Rates income in the Comprehensive Income and Expenditure Statement as they fall due from Council Tax and Business Rates payers, compared with the statutory arrangements for paying across amounts to the General Reserve from the Collection Funds.

Accumulated Absences Account The Accumulated Absences Account absorbs the differences that would otherwise arise on the General Reserve Balance from accruing for compensated absences earned but not taken in the year, e.g. annual leave entitlement carried forward at 31 March. Statutory arrangements require that the impact on the General Reserve Balance is neutralised by transfers to or from the account.

31. EXTERNAL AUDIT COSTS

2018-19 2019-20 £m £m Audit Fees 0.097 External Audit Fees 0.097 External Audit Fees - 0.015 Additional Fees for Prior Year 0.002 0.000 Public Sector Audit Appointments Rebate (0.012) 0.004 External Audit Fees - Teachers' Pension Scheme 0.004 0.116 0.091

79

NOTES TO THE CORE FINANCIAL STATEMENTS

32. MEMBERS’ ALLOWANCES

Payments made to the Council’s elected Members during the year were:

2018-19 2019-20 £m £m 1.021 Allowances 1.042 0.055 Expenses 0.039 1.076 1.081

33. OFFICERS’ REMUNERATION

The definition of senior officer is:

• An officer whose salary is £150,000 or more. • A statutory chief officer as per section 2(6) of the Local Government and Housing Act 1989. • A non-statutory chief officer as per section 2(7) of the Local Government and Housing Act 1989. • An officer reporting to the Head of Paid Service.

The following changes in respect of the Council’s Senior Officers occurred during 2018-19 and 2019-20 and are relevant to the table of remuneration paid to the Council’s Senior Officers below:

• From May 2019, Strategic Directors became known as Executive Directors. • Upon the redundancy of the Chief Executive in 2017, it became necessary to allocate the statutory role of Head of Paid Service (HOPS) to another individual. At the same time an allowance of £10,000 per annum was created to remunerate whoever was currently undertaking the role. The Strategic Director of Adult Care was designated the Council’s HOPS from 1 October 2017, on a temporary basis until 11 April 2018. • The Strategic Director of Commissioning, Communities and Policy was permanently appointed as HOPS from 12 April 2018 and from that date no additional payment is to be made for undertaking this role. Officers reporting to the permanent HOPS are included in the Senior Officers’ Remuneration table. The posts reporting to the permanent HOPS are not new and did exist prior to the change when their details were listed in the table of Council’s employees earning above £50,000. • The former Strategic Director of Adult Care left the Council on 22 July 2018. • The new Strategic director of Adult Care was appointed on 27 August 2018. • The Acting Strategic Director of Adult Care was appointed on 21 January 2019 and was in post until 2 September 2019. • The former Director of Legal Services left the Council on 5 November 2019. • The Acting Director of Legal Services was appointed on 27 November 2019.

80

NOTES TO THE CORE FINANCIAL STATEMENTS

2018-19 2019-20 Salary Pension Employer's Contributions Paid of Head Service for Compensation Employment of Loss Remuneration Total 2018-19 Salary Pension Employer's Contributions for Compensation Employment of Loss Remuneration Total 2019-20 £ £ £ £ £ £ £ £ £ Executive Director of Adult 38,855 0 306 0 39,161 Care 0 0 0 0

Executive Director of Adult 67,116 13,423 0 0 80,539 Care 102,142 23,236 0 125,378 Acting Executive Director 19,567 3,913 0 0 23,480 of Adult Care 47,798 9,560 0 57,357 Executive Director of 118,438 23,688 0 0 142,126 Children's Services 123,681 24,736 0 148,417 Executive Director of Commissioning, 123,711 24,742 0 0 148,453 Communities and Policy 126,185 25,237 0 151,422 Executive Director of Economy, Transport & 123,711 0 0 0 123,711 Environment 126,185 0 0 126,185 Director of Finance and 96,984 19,397 0 0 116,381 ICT 98,924 19,785 0 118,709 91,841 13,207 0 0 105,048 Director of Public Health 95,926 13,794 0 109,720 Director of Community 84,644 16,929 0 0 101,573 Services 86,337 17,267 0 103,604

76,079 15,215 0 0 91,294 Director of Legal Services 60,343 10,948 30,727 102,019 Acting Director of Legal 0 0 0 0 0 Services 30,016 6,003 0 36,019 Director of Organisation, 88,634 17,727 0 0 106,361 Development and Policy 92,656 18,531 0 111,187

90,230 18,046 0 0 108,276 Director of Property 94,284 18,857 0 113,141

The Council’s employees (other than senior officers in the table above) earning above £50,000 during the year have been paid the following amounts:

81

NOTES TO THE CORE FINANCIAL STATEMENTS

Restated 2018-19 2019-20 No of Em ployees No of Em ployees School School Staff Other Total Remuneration Between: Staff Other Total 119 100 219 £50,000 and £54,999 127 97 224 119 46 165 £55,000 and £59,999 99 59 158 73 19 92 £60,000 and £64,999 91 15 106 37 5 42 £65,000 and £69,999 32 19 51 9 2 11 £70,000 and £74,999 21 2 23 7 3 10 £75,000 and £79,999 5 2 7 4 8 12 £80,000 and £84,999 8 1 9 3 0 3 £85,000 and £89,999 1 6 7 2 1 3 £90,000 and £94,999 2 1 3 2 1 3 £95,000 and £99,999 2 1 3 1 0 1 £100,000 and £104,999 1 0 1 1 1 2 £105,000 and £109,999 0 0 0 1 0 1 £110,000 and £114,999 0 0 0 0 1 1 £125,000 and £129,999 0 0 0 0 1 1 £135,000 and £139,999 1 1 2 378 188 566 390 204 594

Remuneration includes gross income and compensation for loss of employment. 2018- 19 employee numbers have been restated to include an additional seventeen employees, who were omitted because of an administrative oversight and to adjust remuneration bandings to exclude pension strain payments, following clarification.

34. TERMINATION BENEFITS

The Council has terminated the contracts of a number of employees in 2019-20, incurring liabilities of £3.610m (2018-19: £1.878m). The termination benefits are split by banding below:

82

NOTES TO THE CORE FINANCIAL STATEMENTS

Number of Number of Total number of Total cost of compulsory other agreed exit packages exit packages redundancies departures by cost band in each band 2018-19 2019-20 2018-19 2019-20 2018-19 2019-20 2018-19 2019-20 actual actual actual actual actual actual actual actual £m £m £0-£20k 58 79 61 105 119 184 0.717 1.064 £20k-£40k 5 5 9 23 14 28 0.369 0.807 £40k-£60k 1 3 3 7 4 10 0.183 0.467 £60k-£80k 1 3 0 2 1 5 0.067 0.355 £80k - £100k 1 5 0 0 1 5 0.081 0.438 £100k-£150k 3 1 1 0 4 1 0.460 0.100 £150k-£200k 0 0 0 1 0 1 0.000 0.156 £200k-£250k 0 1 0 0 0 1 0.000 0.223 69 97 74 138 143 235 1.878 3.610

The 2018-19 number disclosures have been restated to move sixteen legal settlements from compulsory redundancies to other agreed departures.

The total cost of exit packages has increased in 2019-20 because of the increased number of departures during the year but also because of the increased average cost of pension strain within those packages.

35. POOLED BUDGETS

The Council has two pooled budget arrangements, details of which are set out below.

Better Care Fund

On 1 April 2015 the Derbyshire Better Care Fund (BCF) became operational.

Until 2019-20 the Council was partner to the fund along with NHS Northern Derbyshire Clinical Commissioning Group, NHS Southern Derbyshire Clinical Commissioning Group, NHS Hardwick Clinical Commissioning Group, NHS Erewash Clinical Commissioning Group and NHS Tameside and Glossop Clinical Commissioning Group.

From 2019-20 NHS Northern Derbyshire Clinical Commissioning Group, NHS Southern Derbyshire Clinical Commissioning Group, NHS Hardwick Clinical Commissioning Group and NHS Erewash Clinical Commissioning Group combined to become NHS Derby and Derbyshire Clinical Commissioning Group. The Council is now partner to the fund with NHS Derby and Derbyshire Clinical Commissioning Group and NHS Tameside and Glossop Clinical Commissioning Group.

The operation of the pool is ultimately managed by the Derbyshire Health and W ellbeing Board represented by members from each of the partners. The Fund operates as a Section 75 pooled budget and total agreed contributions to the pool are £101.476m. Derbyshire County Council's contribution towards the pool is £43.209m (42.58%).

83

NOTES TO THE CORE FINANCIAL STATEMENTS

The BCF aims to improve the provision of health and social care. All partners contribute to a pooled fund and the overarching objective of the fund is to support the integration of health and social care and align commissioning as agreed between the partners.

Under the agreement, the BCF Plan for Derbyshire is split into two areas: • Contributions to a pooled fund by all partners and commissioned by Derbyshire County Council who are host and lead commissioner • Commissioning of existing funded schemes directly by each partner.

2019-20 Pool Share Incom e £m % Derbyshire County Council 43.209 42.58 Derby and Derbyshire CCG 55.878 55.07 NHS Tameside and Glossop CCG 2.389 2.35

101.476 100.00

2019-20 Expenditure £m CCG schemes for community health services 23.076 Disabled Facilities Grant 6.961 Equipment 6.022 Reablement 4.591 Joint working 8.066 Administration 0.407 Care Bill 2.149 Carers 2.048 Mental health 1.023 Support for people to remain out of hospital 12.451 Improved Better Care Fund 31.055 W inter Pressures 3.627 Total Expenditure 101.476

Net position for Pool 0.000

Children with Complex Needs pooled budget arrangement

The Children with Complex Needs pooled budget arrangement is jointly operated with Derby and Derbyshire CCG. The CCG contributes 33% and the remainder is funded by the Council. Any surplus or deficit carries forward to offset the following year’s contributions, as required by the partnership agreement. Any unspent amounts are transferred to an Earmarked Reserve set up for this purpose.

84

NOTES TO THE CORE FINANCIAL STATEMENTS

31 Mar 2019 31 Mar 2020 £m £m Funding provided to the pooled budget: (4.115) The Council (4.806) (2.027) Derby and Derbyshire CCG (2.367) Expenditure met by the pooled budget 4.115 The Council 4.806 2.027 Derby and Derbyshire CCG 2.367 0.000 (Surplus)/Deficit 0.000

0.000 The Council's share of the (Surplus)/Deficit 0.000

36. TRUST FUNDS

Trust Funds are made up of donations or bequests made to the Council. These funds are not part of the Council’s Accounts. Other funds include monies held for residents in the Council’s residential care homes.

2018-19 2019-20

Total Trust Funds Other Funds Total £m £m £m £m 5.861 Opening Balance 1.292 3.011 4.303 0.349 Add Income 0.201 0.865 1.066 (1.907) Less Expenditure (0.022) (0.008) (0.030) 4.303 Closing Balance 1.471 3.868 5.339 The funds are represented by: 0.052 Investments 0.046 0.000 0.046 4.251 Cash & temporary loans 1.425 3.868 5.293 4.303 Total Assets 1.471 3.868 5.339 65 No of Funds (actual not £m) 56 10 66

Cabinet approved the transfer of 47 educational charitable Trust Funds, for which the Council is the sole Trustee, to Foundation Derbyshire, on 23 April 2020. The total value of these funds was £1.323m at 31 March 2020.

37. INCOME FROM CONTRACTS W ITH SERVICE RECIPIENTS

A service recipient is a party that has contracted with the Council to obtain goods or services which are the output of the Council’s normal operating activities. Such a contract may be in writing, be made orally or be in accordance with customary business practice. The table below identifies income amounts in the CIES arising from contracts with service recipients.

85

NOTES TO THE CORE FINANCIAL STATEMENTS

Incom e 2018-19 2019-20 Type of Goods/Service £m £m Adult Care Residential Care Homes 29.281 29.842 Nursing Homes 8.930 10.136 Co-funding Charge 8.837 9.016 Direct Care Trading 0.968 0.723 Shared Lives 0.000 0.521 Other 0.191 0.192 Sub Total 48.207 50.430 Corporate Services Property Repairs, Maintenance, Cleaning and Facilities Management 4.963 4.042 PFI Services to Academies 2.813 3.697 Pension Fund Administration 2.189 2.334 Registrar Services 1.424 1.550 Legal Services 0.968 1.060 Human Resource Services 0.000 0.489 Recruitment and Payroll Services 0.184 0.222 IT Support 0.289 0.043 Other 1.081 0.787 Sub Total 13.911 14.224 Clean Growth and Regeneration Other 0.009 0.009 Sub Total 0.009 0.009 Health and Com m unities Other 0.118 0.125 Sub Total 0.118 0.125 Highways, Transport and Infrastructure Inspection Fees (S38/S278 Highways Act) 2.832 2.542 Vehicle Maintenance 1.331 1.534 New Roads and Street W orks Act Fees 1.199 1.304 Pay and Display Parking 0.643 0.614 Highways Maintenance and Design 0.608 0.604 Countryside Shop Merchandise 0.344 0.317 Sale of Obsolete Vehicles 0.000 0.314 Cross Boundary Bus Services 0.279 0.285 Land Searches 0.241 0.237 Highways & Lighting W orks 0.232 0.237 Other 0.692 0.612 Sub Total 8.401 8.600

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NOTES TO THE CORE FINANCIAL STATEMENTS

Incom e 2018-19 2019-20 Type of Goods/Service £m £m Strategic Leadership, Culture and Tourism Other 0.405 0.302 Sub Total 0.405 0.302 Young People Catering 8.222 8.287 School Food and Meals 6.416 5.385 Sport/Outdoor Education 1.417 1.621 Extended School Services 1.343 1.389 Training/Advice to Educational Entities 0.779 0.669 Adult Education 0.585 0.449 Early Intervention 0.947 0.378 Behaviour Support 0.416 0.299 Services for Teenagers 0.313 0.222 Other 2.175 1.884 Sub Total 22.613 20.583 Overall Total 93.664 94.273

Young People portfolio income in 2018-19 has been restated to include income received by schools.

Amounts included in the Balance Sheet for contracts with service recipients:

31 Mar 2019 31 Mar 2020 £m £m 8.155 Receivables 7.600 0.892 Contract Assets 0.298 (1.427) Contract Liabilities (1.629) 7.620 Total Included in Net Assets 6.269

Receivables and Contract Assets are included within Amounts Owed to the Council in the Debtors analysis (Note 23).

Contract Liabilities are included within Income in Advance to the Council in the Creditors analysis (Note 25).

Changes in the contract assets and contract liabilities balances during the year are as follows:

87

NOTES TO THE CORE FINANCIAL STATEMENTS

2018-19 2019-20 Contract Contract Contract Contract Assets Liabilities Assets Liabilities £m £m £m £m 0.000 (1.427) Cash received before obligations fulfilled 0.000 (1.629) Obligations relating to contract liabilities at the start of 0.000 1.874 the year fulfilled 0.000 1.427 0.892 0.000 Obligations fulfilled before payment is due 0.298 0.000 Transfers from Contract Assets to Receivables as (1.126) 0.000 payment became due (0.892) 0.000 (0.234) 0.447 Movem ent in Contract Assets and Liabilities (0.594) (0.202) 1.126 (1.874) Contract Assets and Liabilities at the start of the year 0.892 (1.427) Contract Assets and Liabilities at the end of the 0.892 (1.427) year 0.298 (1.629)

The value of the contract liabilities presented at the end of the year represents the value of income that is expected to be recognised in the future, relating to obligations that are unsatisfied (or partially unsatisfied) at the end of the year. All amounts are expected to be realised no later than one year from the year ended 31 March 2020.

The Council only recognises income at an amount that corresponds directly with the value to the service recipients of the Council’s performance to the end of the year.

Performance obligations are deemed to be satisfied over time, as opposed to at a point in time, in respect of the following significant income streams:

• Residential Care, Nursing Home and Co-funding charges • PFI Services to Academies • Pension Fund Administration

This is a faithful depiction as these services are delivered to, and the benefits consumed by, the service recipients simultaneously. The Council has a right to receive fixed payments from service users for each day of service provided, therefore it recognises income to the amount that it has the right to invoice according to the duration of the service provision.

Performance obligations are also deemed to be satisfied over time, as opposed to at a point in time, in respect of the following significant income stream:

• Property Repairs, Maintenance, Cleaning and Facilities Management

This is a faithful depiction as the Council has an enforceable right to receive income for performance completed to date. The Council recognises income based on the costs incurred to satisfy the performance obligations.

Performance obligations are deemed to be satisfied at a point in time in respect of the following significant income streams:

88

NOTES TO THE CORE FINANCIAL STATEMENTS

• Inspections under Section 38 and 278 of the Highways Act • Catering

In respect of these services, income is only recognised when the contracted work has been completed.

38. DEDICATED SCHOOLS GRANT (DSG)

The Council's expenditure on schools is funded primarily by grant monies provided by the Department for Education, the Dedicated Schools Grant (DSG). The grant is ring- fenced and can only be applied to meet expenditure properly included in the Schools Budget as defined in The School and Early Years Finance (England) (No. 2) Regulations 2018.

The Schools Budget includes elements for a range of educational services provided on an authority-wide basis and for the Individual Schools Budget (ISB), which is divided into a budget share for each local authority school. An in-year adjustment has been made comprising an addition to the 2019-20 grant receipts for Early Years provision during 2018-19, following final calculation of the amount due from the Department for Education. Reserves were used to support 2019-20 planned spend because the final grant allocation for High Needs students was £0.343m below the amount anticipated when setting spending plans.

Actual central expenditure includes commitments that remain unspent as at the end of the financial year. These commitments have been transferred to an earmarked reserve and form part of the DSG balance. Details of the deployment of the DSG receivable for 2019-20 are as follows:

89

NOTES TO THE CORE FINANCIAL STATEMENTS

2019-20 Individual Central Schools DSG Expenditure Budget Total Reserves £m £m £m £m DSG Reserves brought forward from 2018-19 5.603 5.603 Carry forward to 2020-21 agreed in advance (3.668) Planned use of reserves 1.935 (1.935) Final DSG for 2019-20 before Academy recoupment 555.704 Less Academy recoupment for 2019-20 (196.742) Total DSG after Academy recoupment for 2019-20 358.962 Agreed initial budgeted distribution in 2019-2070.076 290.821 360.897 In year adjustments - Early Years receipt relating to 2018-19 0.058 0.000 0.058 Use of reserves to cover increase in deduction for High Needs places elsewhere 0.343 0.000 0.343 (0.343) Final budgeted distribution for 2019-20 70.477 290.821 361.298 Less Actual central expenditure (73.471) (73.471) Less Actual ISB deployed to Private, Voluntary and Independent Settings for Nursery Education (38.725) (38.725) Less Actual ISB deployed to schools (252.239) (252.239) 2019-20 in-year position (2.994) (0.143) (3.137) (3.137) Carry forward to 2019-20 0.188

DSG grant income in Note 39 below is the sum of ‘Total DSG after Academy Recoupment for 2019-20’ and the £0.058m ‘In-year Adjustment’ in the table above.

90

NOTES TO THE CORE FINANCIAL STATEMENTS

39. GRANT INCOME

Incom e Revenue Grants 2018-19 2019-20 £m £m Dedicated Schools Grant (DSG) DfE 378.759 359.020 Public Health Grant DoH 40.548 39.477 Pupil Premium Grant DfE 20.415 19.318 Sixth Form Funding DfE 8.982 6.825 DACES SFA DfE 5.790 4.884 Universal Free School Meals for Infant DfE 8.372 6.503 Disabled Facilities Grant MHCLG 6.451 6.961 Teachers Pension Grant DfE 0.000 6.546 Troubled Families MHCLG 2.179 1.960 Asylum Seeker Grant HO 1.367 1.613 School Improvement Grant DfE 1.154 0.458 Teachers Pay Grant DfE 1.529 3.180 PE and Sport Grant DfE 5.263 4.812 Music Service Grant Arts 1.403 1.415 Other Grants Various 6.091 8.043 Total Departmental 488.302 471.016 Revenue Support Grant MHCLG 0.000 13.517 Business Rates Relief Grant MHCLG 13.642 7.603 Private Finance Initiative ESFA 10.504 10.504 Adult Social Care Grant DoH 2.267 6.197 New Homes Bonus MHCLG 2.058 2.098 Improved Better Care Fund MHCLG 24.906 31.055 Independent Living Fund 2.614 2.534 W inter Pressures 3.627 3.627 Levy Fund Surplus 1.704 0.379 Other Grants Various 1.863 2.954 Total Corporate Income 63.186 80.468 Total Grants 551.488 551.484

91

NOTES TO THE CORE FINANCIAL STATEMENTS

Incom e Capital Grants 2018-19 2019-20 £m £m Highways Capital Maintenance DfT 15.273 15.273 Additional Highways Maintenance DfT 8.414 0.000 Pothole Action Fund DfT 2.036 1.015 Integrated Transport DfT 3.644 3.644 Highways Maintenance Incentive Fund DfT 3.206 3.181 Highways Maintenance Challenge Fund DfT 0.000 4.867 National Productivity Investment Fund DfT 2.450 0.000 A61 Corridor Various 2.051 1.519 Safer Roads Fund DfT 1.180 0.000 Capital Maintenance Grant EFA 8.632 0.000 Basic Need Grant EFA 12.680 2.471 Devolved Formula Capital DFE 4.861 1.442 Lottery Funding 3.507 0.000 Ilkeston Station NSF (New Station Fund) 0.000 5.884 Local Growth Fund* (13.302) (28.972) School Condition Allowance EFA 0.000 7.682 Other Capital Grants Various 19.662 13.777

74.294 31.783

*Using the freedom and flexibilities given to LEP Accountable Bodies, the Council utilised Local Growth Fund underspends during 2017-18 and 2018-19 to fund its capital programme. By the end of 2019-20, the Council repaid £28.972m (2018-19: £13.302m).

40. CASH FLOW – INVESTING ACTIVITIES

2018-19 2019-20 £m £m (96.731) Purchase of Non-Current Assets (99.250) (797.611) Purchase of New Investments (1,036.512) 5.535 Proceeds from Sale of Non-Current Assets 3.497 72.737 Capital Grants Received 32.546 778.166 Investments Redeemed 1,104.261 (37.904) 4.541

41. CASH FLOW – FINANCING ACTIVITIES

2018-19 2019-20 £m £m (283.075) Repay Amounts Borrowed (533.657) (2.536) Principal Repayment on PFI and Leases (4.104) 296.250 New Short Term Loans 550.503 10.639 12.742

92

NOTES TO THE CORE FINANCIAL STATEMENTS

42. CASH FLOW – OPERATING ACTIVITIES

2018-19 2019-20 £m £m (542.637) Payments to and on behalf of employees (530.988) (596.425) Other Operating Payments (640.295) 303.125 Council Tax 329.430 154.162 Business Rates 19.484 0.000 Revenue Support Grant 13.517 550.675 Other Revenue Grants 559.283 168.202 Other Income 275.804 37.102 Operating Costs of Providing Services 26.236 (14.261) External Interest Paid (13.681) (4.154) Interest on PFI and Finance Leases (3.956) 2.906 Interest Received 3.046 2.077 Dividends Received 3.569 23.670 15.214

43. RECONCILIATION OF NET SURPLUS/(DEFICIT) ON THE CIES TO THE OPERATING ACTIVITIES NET CASH FLOW

2018-19 2019-20 £m £m Surplus/(Deficit) on the Provision (294.773) of Services (302.634) Non Cash Transactions: 42.569 Depreciation 42.602 30.544 Impairment 12.055 67.323 Movement in Pension Liability 72.000 (1.907) Adjustment for Collection Fund (3.081) 1.756 Investments Fair Value Movements 8.352 (6.992) Movement in Revenue Debtors (5.016) 1.077 Movement in Loss Allowances 3.203 7.139 Movement in Revenue Creditors 22.984 0.884 Movement in Inventories 0.235 2.012 Movement in Provisions (2.341) 144.406 Total Non Cash Transactions 150.992 Item s Classified Elsewhere Net charge for Disposal of 233.214 Non-Current Assets 175.383 Revenue Expenditure Funded from 15.117 Capital Under Statute 23.254 (74.294) Capital Grants (31.783) 23.670 15.212

93

NOTES TO THE CORE FINANCIAL STATEMENTS

44. RECONCILIATION OF CASH FLOW S AND LIABILITIES ARISING FROM FINANCING ACTIVITIES

Non-Cash 31 Mar 2019 Cash Flows Changes 31 Mar 2020 £m £m £m £m Current Borrowing 37.574 16.857 4.576 59.007 Non Current Borrowing 246.075 (0.011) (3.498) 242.566 PFI and Finance Lease Liabilities 68.720 (4.103) (0.223) 64.394 352.369 12.744 0.854 365.967

Non-cash changes to the Council’s liabilities include an increase of £4.581m in the carrying value of current borrowing and an equal decrease in the carrying value of non- current borrowing to recognise amounts falling due within 12 months of the balance sheet date. Interest of £1.083m was accrued in the year which increased the carrying value of liabilities. The remaining non-cash transactions represent a reduction in carrying value of £0.223m because of a movement between these liabilities and short term creditors and debtors.

IFRS 9 Measurement Non-Cash 31 Mar 2018 Adjustm ent 1 Apr 2018 Cash Flows Changes 31 Mar 2019 £m £m £m £m £m £m Current Borrowing 15.303 0.000 15.303 13.106 9.165 37.574 Non Current Borrowing 283.471 (29.224) 254.247 0.069 (8.241) 246.075 PFI and Finance Lease Liabilities 71.595 0.000 71.595 (2.535) (0.340) 68.720 370.369 (29.224) 341.145 10.640 0.584 352.369

45. LEASE TYPE ARRANGEMENTS

FINANCE LEASES – COUNCIL AS LESSEE The Council has a number of property assets that were acquired under finance leases. All assets are carried as Property, Plant and Equipment on the Balance Sheet. Note 14 shows the net value of assets held under Finance Leases.

The Minimum Lease Payments (MLP) are made up of the following:

2018-19 2019-20 £m £m Interest Liability MLP Interest Liability MLP 0.572 0.344 0.916 W ithin 1 year 0.546 0.369 0.915 2.009 1.586 3.595 1 to 5 years 1.884 1.596 3.480 3.619 3.422 7.041 More than 5 years 3.198 3.044 6.242 5.628 5.008 10.636 Total Non-Current 5.082 4.640 9.722 6.200 5.352 11.552 5.628 5.009 10.637

94

NOTES TO THE CORE FINANCIAL STATEMENTS

The MLP does not contain rents that are contingent on events taking place after the lease was entered into, such as adjustments following rent reviews. Contingent rents on these assets are insignificant.

OPERATING LEASES – COUNCIL AS LESSEE The Council has a number of property assets (within PPE) under operating leases for: • Delivery of local education. • Youth information and clubs. • Community and environmental purposes. • Miscellaneous use, including office accommodation.

The Council has no vehicles, plant or equipment under an operating lease as at 31 March 2020 (2018-19: none).

The MLP due under non-cancellable leases in future years in respect of these properties will be payable over the following periods:

2018-19 2019-20 £m £m PPE PPE 0.744 W ithin 1 year 0.736 2.818 1 to 5 years 2.879 4.693 More than 5 years 3.970 8.255 7.585

A small number of properties were sub-let in 2019-20. The rental expenditure that was charged to the Net Cost of Services in relation to these assets was:

2018-19 2019-20 £m £m 0.017 Minimum Lease Payment 0.002 (0.014) Less sublease income (0.006) 0.003 (0.004)

FINANCE LEASES – COUNCIL AS LESSOR The Council has two properties that have been leased out upon receipt of a premium. W ith respect to these leases, there is no further lease income to be received and therefore there is no debtor held in the accounts. Details of the properties currently leased out are: • Grassmoor Golf Centre to Grassmoor Golf Ltd on a 1,000 year lease, which commenced in 2002, for a one-off payment of £230,000. • Land at W elbeck Road to Old Bolsover Town Council on a 99 year lease, which commenced in 2020 for a one-off payment of £10,000. • Unit C1 Holmewood Business Park to SBK Property Limited on a 99 year lease, which commenced in 2015.

95

NOTES TO THE CORE FINANCIAL STATEMENTS

The Council also leases out the first floor offices of Ripley Library to Derbyshire Healthcare NHS Foundation Trust for £14,000 each year. The rental income and the unguaranteed residual value of the asset, which relates to the estimated value of the property at the end of the lease (i.e. an estimated sale value), will be received over the following periods: 2018-19 2019-20 £m £m Minimum Lease Payments Unguaranteed of Value Residual Property Investment Gross Lease the in Finance Unearned Income Minimum Lease Payments Unguaranteed of Value Residual Property Investment Gross Lease the in Finance Unearned Income 0.014 0.000 0.014 0.008 W ithin 1 year 0.014 0.000 0.014 0.007 0.056 0.000 0.056 0.028 1 to 5 years 0.056 0.000 0.056 0.026 0.070 0.062 0.132 0.025 More than 5 years 0.056 0.062 0.118 0.019 0.140 0.062 0.202 0.061 0.126 0.062 0.188 0.052

The Council has no provisions for unrealised finance lease investments. The minimum lease payments do not contain rents that are contingent on events taking place after the lease was entered into, such as adjustments following rent reviews.

OPERATING LEASE – COUNCIL AS LESSOR The Council leases out a number of property assets (PPE) under operating leases including leases for: • Economic development to provide suitable affordable accommodation for local businesses. • Youth information and clubs. • Community and environmental purposes. • Siting electricity substations.

The minimum lease payments receivable under leases in future years are: 2018-19 2019-20 £m £m Vehicles & Land Building Total Vehicles & Land Building Total 0.000 0.842 0.842 W ithin 1 year 0.000 0.845 0.845 0.000 2.138 2.138 1 to 5 years 0.000 2.031 2.031 0.000 6.129 6.129 More than 5 years 0.000 4.714 4.714 0.000 9.109 9.109 0.000 7.590 7.590

The minimum lease payments do not contain rents that are contingent on events taking place after the lease was entered into, such as adjustments following rent reviews.

96

NOTES TO THE CORE FINANCIAL STATEMENTS

46. PRIVATE FINANCE INITIATIVE (PFI) AND SIMILAR CONTRACTS

There are three PFI schemes in which private sector providers build and maintain accommodation for use by the Council:

• Phase 1 – in 2001 the Council signed a contract for two secondary schools at Tupton and Chapel-en-le Frith. They were completed and occupied in April 2003 under a 26 year contract. Tupton Hall School became an Academy on 1 October 2019. • Phase 2 – during 2004-05 the Council signed a contract for two further schools at Newbold and Long Eaton which became operational in February 2006 under a 26 year contract. Long Eaton School became an Academy on 1 April 2011. Newbold School became an Academy, known as Outwood Academy Newbold, on 1 January 2015. • Phase 3 – Schools provided under the Building Schools for the Future (BSF) programme opened in November 2010 at Bolsover and Springwell (Staveley). These were designed and built as PFI schools and will be operated on a 25 year contract. Bolsover School became an Academy on 1 October 2012. Springwell Community School became an Academy on 1 March 2020.

Payments The Council makes an agreed payment each year (the unitary charge) which is increased by inflation and can be reduced if the contractor fails to meet availability and performance standards.

Although the payments that are made to the contractor are described as unitary payments, they have been calculated to compensate the contractor for the fair value of the services they provide, the capital expenditure incurred and interest payable whilst the capital expenditure remains to be reimbursed.

During 2017-18, the Council undertook a refinancing exercise of the BSF PFI debt, which reduced the interest charge on the long term debt. This resulted in a one-off financial benefit of approximately £2.100m for the Council. The term of the loan and service level elements of the agreement all remain the same.

The liability outstanding to pay the contractor for capital expenditure incurred is shown below.

97

NOTES TO THE CORE FINANCIAL STATEMENTS

2018-19 2019-20 Ph 1 Ph 2 BSF Ph 1 Ph 2 BSF £m £m £m £m £m £m

Unitary Charge Paid

Delivery of services 2.565 2.719 3.889 2.539 2.935 3.934

Interest Payment 1.289 1.468 0.815 1.208 1.399 0.778

Reduction to Liability 1.165 1.080 1.327 1.246 1.149 1.364

Unitary Charge Paid 5.019 5.267 6.031 4.993 5.482 6.076

Loan Liability B Fwd (18.526) (22.993) (29.520) (17.360) (21.913) (28.193)

Reduction to Liability 1.165 1.080 1.327 1.246 1.149 1.364

Loan Liability C Fwd (17.360) (21.913) (28.193) (16.114) (20.764) (26.830)

Liability in Creditors (1.246) (1.149) (1.364) (1.333) (1.222) (1.401)

Non Current Liabilities (16.114) (20.764) (26.830) (14.781) (19.542) (25.428)

Loan Liability C Fwd (17.360) (21.913) (28.193) (16.114) (20.764) (26.830)

Payments remaining to be made under the PFI contract at 31 March are as follows: 2018-19 2019-20 Ph 1 Ph 2 BSF Ph 1 Ph 2 BSF £m £m £m £m £m £m W ithin one year: Service charge 2.437 2.233 3.317 2.437 2.233 3.317 Interest element 1.208 1.399 0.778 1.121 1.325 0.741 Repayment of liability 1.246 1.149 1.364 1.333 1.222 1.401 Two to five years: Service charge 9.747 8.930 13.266 9.747 8.930 13.266 Interest element 3.901 4.813 2.726 3.490 4.470 2.565 Repayment of liability 5.915 5.377 5.841 6.326 5.720 6.003 Six to ten years: Service charge 12.183 11.163 16.583 9.945 11.163 16.583 Interest element 2.247 3.845 2.453 1.538 3.278 2.225 Repayment of liability 10.024 8.892 8.256 8.455 9.459 8.484 Eleven to fifteen years: Service charge 0.198 6.433 16.583 0.000 4.201 16.583 Interest element 0.001 0.810 1.249 0.000 0.395 0.988 Repayment of liability 0.176 6.495 9.460 0.000 4.362 9.721 Sixteen to twenty years: Service charge 0.000 0.000 5.274 0.000 0.000 1.958 Interest element 0.000 0.000 0.110 0.000 0.000 0.020 Repayment of liability 0.000 0.000 3.274 0.000 0.000 1.223

98

NOTES TO THE CORE FINANCIAL STATEMENTS

All of the PFI schools will be handed back to the Council (or the Governors of the School for Academies) when the relevant contract expires. In the case of the Phase 1 schools this will be on 28 April 2029, for the Phase 2 schools it will be 12 February 2032 and for the BSF schools on 31 October 2035.

Under the terms of the agreements, the Council is able to terminate the agreements at any time. If this were due to a contractor default the Council is entitled to re-tender the contract, otherwise the contractors would be entitled to compensation. The Council has step in rights, if action needs to be taken in connection with the services provided by any of the contractors because of a serious risk to the health or safety of persons or to discharge a statutory duty; and/or because an emergency has arisen.

Property, Plant and Equipment The schools are recognised on the Council’s Balance Sheet, except those which are Academies. Movements in their value over the year are detailed in the analysis of the movement on the Property, Plant and Equipment balance in Note 14.

47. DEFINED CONTRIBUTION PENSION SCHEMES Teachers’ Pension Scheme Teachers employed by the Council are members of the Teachers’ Pension Scheme, administered by the Department for Education. The Scheme provides teachers with specified benefits upon their retirement, and the Council contributes towards the costs by making contributions based on a percentage of members’ pensionable salaries.

The Scheme is a defined benefit scheme which is unfunded and the Department for Education uses a notional fund as the basis for calculating the employers’ contribution rate paid by local authorities. The Council is not able to identify its share of the underlying financial position and performance of the Scheme with sufficient reliability for accounting purposes. For the purposes of this Statement of Accounts, it is therefore accounted for on the same basis as a defined contribution scheme.

In 2019-20 the Council paid £40.435m to Teachers’ Pensions (2018-19: £38.797m) in respect of teachers’ retirement benefits. During 2019-20 the Employer’s Contribution rate for the Teachers’ Pension Scheme was 16.48% until 1 September 2019, when it increased to 23.68% (2018-19: 16.48%).

NHS Pension Scheme Former NHS employees working in the Surestart and Public Health fields that moved to the Council in 2008 and 2013, respectively, and some Public Health staff employed since then, are members of the NHS Pension Scheme, administered by the Department of Health. The Scheme provides these employees with specified benefits upon their retirement, and the Council contributes towards the costs by making contributions based on a percentage of members’ pensionable salaries.

99

NOTES TO THE CORE FINANCIAL STATEMENTS

The Scheme is a multi-employer defined benefit scheme which is unfunded and the Department for Health uses a notional fund as the basis for calculating the employers’ contribution rate paid by local authorities. The Council is not able to identify its share of the underlying financial position and performance of the Scheme with sufficient reliability for accounting purposes. For the purposes of this Statement of Accounts, it is therefore accounted for on the same basis as a defined contribution scheme, which is consistent with the NHS method of accounting.

In 2019-20 the Council paid £0.615m to the NHS Pension Scheme (2018-19: £0.884m) in respect of the retirement benefits of these Council employees. The Employer’s Contribution rate during 2019-20 for the NHS Pension Scheme increased to 20.68%, with 14.38% continuing to be collected through the Council’s payroll, an additional 2.5% collected from the Council through invoicing and the remaining 3.8% being funded by the Department of Health and Social Care (2018-19: 14.38%). No further disclosures are required because of the immateriality of the information.

48. DEFINED BENEFIT SCHEME

The Council makes contributions towards the cost of post-employment benefits. Although these benefits will not actually be payable until employees retire, the Council has a commitment to make the payments that needs to be disclosed at the time that employees earn their future entitlement.

The Council participates in two post-employment schemes: • The Local Government Pension Scheme (LGPS), administered by Derbyshire County Council – this is a funded defined benefit final salary scheme, meaning the Council and employees pay contributions into a fund, calculated at a level intended to balance the pension liabilities with investment assets. • Arrangements for the award of discretionary post-retirement benefits upon early retirement – this is an unfunded defined benefit arrangement, under which liabilities are recognised when awards are made. However, there are no investment assets built up to meet these pension liabilities, and cash has to be generated to meet actual pensions payments as they eventually fall due.

The Council recognises the cost of retirement benefits in the reported cost of services when they are earned by employees, rather than when the benefits are eventually paid as pensions. However, the charge the Council is required to make against Council Tax is based on the cash payable in the year, so the real cost of post-employment/retirement benefits is reversed out of the General Reserve via the Movement in Reserves Statement.

The following transactions have been made during the year:

100

NOTES TO THE CORE FINANCIAL STATEMENTS

LGPS Teachers 2018-19 2019-20 2018-19 2019-20 Notes/

Statem ent £m £m £m £m Current service cost 101.043 117.012 0.000 0.000 Net interest cost 7 17.748 21.542 1.697 1.500 Past service costs & curtailments 14.510 1.057 0.000 0.000 Settlements (8.626) (8.415) 0.000 0.000 Benefits charged to the CIES 124.675 131.196 1.697 1.500 Remeasurement loss/(gain) 166.669 (294.190) 2.430 (6.744) Total Loss/(Gain) 291.344 (162.994) 4.127 (5.244) Movements in Reserves Statement: Reversal of charges made 30 (124.675) (131.196) (1.697) (1.500) Contributions - unfunded benefits 30 2.490 2.446 0.000 0.000 30 Employers' contributions payable 52.053 53.823 4.506 4.427

Assets and Liabilities in Relation to Post-Employment Benefits Reconciliation of present value of the scheme liabilities (defined benefit obligation):

Funded liabilities: Unfunded liabilities: 2018-19 2019-20 2018-19 2019-20 £m £m £m £m Opening balance at 1 April 2,680.619 3,014.575 65.091 64.712 Current service cost 101.043 117.012 0.000 0.000 Interest cost 72.599 72.817 1.697 1.500 Contributions by participants 17.587 17.853 0.000 0.000 Remeasurement losses/(gains) 227.649 (520.996) 2.430 (6.744) Benefits paid (65.870) (78.168) 0.000 0.000 Unfunded benefits paid (2.490) (2.446) (4.506) (4.427) Effect of settlements (31.072) (21.645) 0.000 0.000 Past service costs 14.510 1.057 0.000 0.000

Closing balance at 31 March 3,014.575 2,600.059 64.712 55.041

The expected return on assets is determined by considering the expected returns available on the assets underlying the current investment policy. Expected yields on fixed interest investments are based on gross redemption yields as at the Balance Sheet date.

Reconciliation of fair value of the scheme (plan) assets:

101

NOTES TO THE CORE FINANCIAL STATEMENTS

Local Government 2018-19 2019-20 £m £m Opening balance at 1 April (2,046.874) (2,144.029) Interest income (54.851) (51.275) Other remeasurement (gain)/loss (60.980) 226.806 Employer contributions (52.053) (53.823) Contributions by participants (17.587) (17.853) Benefits paid 65.870 78.168 Effect of settlements 22.446 13.230

Closing balance at 31 March (2,144.029) (1,948.776)

Scheme History The liabilities show the underlying commitments that the Council has in the long run to pay post-employment (retirement) benefits. The total net liability of the LGPS of £651.283m has a substantial impact on the net worth of the Council as recorded in the Balance Sheet. However, statutory arrangements for funding the deficit mean that the financial position of the Council remains healthy: • the deficit on the Local Government scheme will be made good by increased contributions over the remaining working life of employees (i.e. before payments fall due), as assessed by the scheme Actuary; • finance is only required to be raised to cover discretionary benefits when the pensions are actually paid.

Present Present value of Value of (Surplus)/deficit in the liabilities: assets: Scheme: LGPS Discretionary Benefits LGPS LGPS Discretionary Benefits Total £m £m £m £m £m £m 2015-16 2,142.057 65.787 (1,579.686) 562.371 65.787 628.158 2016-17 2,626.028 68.512 (1,984.638) 641.390 68.512 709.902 2017-18 2,680.619 65.091 (2,046.874) 633.745 65.091 698.836 2018-19 3,014.575 64.712 (2,144.029) 870.546 64.712 935.258

2019-20 2,600.059 55.041 (1,948.776) 651.283 55.041 706.324

The total contributions expected to be made to the Local Government Pension Scheme by the Council in the year to 31 March 2021 is £55.930m.

102

NOTES TO THE CORE FINANCIAL STATEMENTS

Basis for Estimating Assets and Liabilities Liabilities have been assessed on an actuarial basis using the projected unit credit method, an estimate of the pensions that will be payable in future years dependant on assumptions about mortality rates, salary levels etc. Both the Local Government Pension Scheme and Discretionary Benefits liabilities have been assessed by Hymans Robertson LLP, an independent firm of actuaries, with estimates for the Council Fund being based on the latest full valuation of the scheme as at 31 March 2019.

The principal assumptions used by the Actuary have been:

2018-19 2019-20 Mortality Assumptions: Longevity at 65 (current pensioners): -Men 21.9 21.6 -W omen 24.4 23.7 Longevity at 65 (future pensioners): -Men 23.9 22.6 -W omen 26.5 25.1 Inflation Rates: Increase in salaries (LGPS only) 3.0% 2.6% Increase in pensions 2.5% 1.9% Discounting scheme liabilities 2.4% 2.3%

The sensitivities regarding the principal assumptions used to measure the scheme liabilities are set out below, showing the impact of a change at 31 March 2020:

Local Government Approxim ate increase to Approxim ate em ployer liability monetary amount % £m 0.5% decrease in real discount rate 9 243.973 0.5% increase in salary increase rate 1 24.397

0.5% increase in pension increase rate 8 217.430

The Actuary has noted that in order to quantify the impact of a change in the financial assumptions used, the value of the scheme liabilities at 31 March 2020 has been calculated and compared on varying bases. The approach taken is consistent with that adopted to derive the IAS19 figures provided by the Actuary for the accounts.

To quantify the uncertainty around life expectancy, the Actuary has calculated the difference in cost to the Employer of a one year increase in life expectancy. For sensitivity purposes, this is assumed to be an increase in the cost of benefits of around 3-5%. In practice the actual cost of a one year increase in life expectancy will depend on the structure of the revised assumption (i.e. if improvements to survival rates predominantly apply at younger or older ages). 103

NOTES TO THE CORE FINANCIAL STATEMENTS

These figures have been derived based on the membership profile of the Employer as at the date of the most recent actuarial valuation.

The return on the Fund in market value terms for the period to 31 March 2020 is based on actual Fund returns as provided by the Administering Authority. The total return for the period from 1 April 2019 to 31 March 2020 is a loss of 4.7% (2018-19: 5.7% gain).

The Discretionary Benefits arrangements have no assets to cover its liabilities. The Local Government Pension Scheme’s assets consist of the following categories, by proportion of the total assets held:

2018-19 2019-20 % % Equity investments 59.5 56.0 Debt instruments: Government bonds 9.3 10.0 Other bonds 12.5 16.0 Property 8.0 9.0 Cash and cash equivalents 8.0 6.0 Other assets 2.7 3.0 Total 100.0 100.0

History of Experience Gains and Losses The actuarial gains identified as movements on the Pension Reserve can be analysed into the following categories, measured as a percentage of assets or liabilities at the balance sheet date:

LGPS Teachers Actuarial gain / gain Actuarial (loss) assets on assets total over / (gain) Actuarial liabilities loss on total over liabilities / (gain) Actuarial liabilities loss on total over liabilities 2015-16 (3.10%) (10.13%) (8.62%) 2016-17 17.26% 14.49% 7.29% 2017-18 0.85% (1.93%) (0.94%) 2018-19 2.84% 7.55% 3.76% 2019-20 (11.64%) (20.04%) (12.25%)

104

NOTES TO THE CORE FINANCIAL STATEMENTS

Forecast for next year

Local Government Teachers Pensions £m £m £m £m Projected service cost Estimated pay: 260.605 0.000 Service cost (% of pay) 34.4% n/a Implied service cost next year: 88.732 0.000 Net interest cost 15.338 1.215 Administration expenses 1.042 0.000 Total pension cost recognised 105.112 1.215 Projected employer contributions Normal contributions (55.930) (4.427) Total employer contributions next (55.930) (4.427) year Current deficit 651.283 55.041

Projected deficit next year 700.465 51.829

49. NATURE AND EXTENT OF RISKS ARISING FROM FINANCIAL INSTRUMENTS

Overall Procedures for Managing Risk The Council’s overall risk management procedures focus on the unpredictability of financial markets, and are structured to implement suitable controls to minimise these risks. The annual Treasury Management Strategy outlines the detailed approach to managing risk in relation to the Council’s financial instrument exposure. Actual performance is also reported annually to Members.

Detailed information can be found in the annual Capital Programme Approvals, Treasury Management and Capital Strategy which is available on the Council’s Derbyshire Democracy website under the Council meeting on 5 February 2020:

Credit risk

Credit risk is the potential for the Council to suffer loss due to another party defaulting on its financial obligations.

The Council’s maximum exposure to credit risk is deemed to be the gross carrying amount of the financial assets held.

The Council defines default as a customer or borrower’s failure to pay amounts owed to it. A counterparty is likely to be considered in default if: • it is in administration, insolvency or winding up proceedings; • it has entered into a scheme of arrangement with its creditors; • it is in default on similar financial assets.

105

NOTES TO THE CORE FINANCIAL STATEMENTS

This risk is minimised through the Annual Investment Strategy, which requires that deposits are not made with financial institutions unless they meet identified minimum credit criteria. The financial institutions’ credit ratings are monitored throughout the year and significant changes are reported to Cabinet. The Annual Investment Strategy also imposes a maximum sum to be invested and a maximum duration of each loan for counterparties.

It is the Council’s policy to write-off any debt where all reasonable measures have been taken to recover the debt or after the Chief Financial Officer and the Director of Legal Services have established that the debt is irrecoverable due to bankruptcy or insolvency.

The Council’s maximum exposure to credit risk in relation to its cash deposits, investments in banks and building societies and money market funds is £243.161m, all of which is deposited in the UK, except for £30.372m in global pooled funds. A risk of non-recovery applies to all of the Council’s deposits, but there was no evidence at 31 March 2020 that this was likely to crystallise.

The Council’s potential maximum exposure to credit risk on other financial assets, based on experience of default, adjusted to reflect current market conditions is £30.955m. These financial assets include trade debtors (£27.301m), transferred debt (£0.040m), contract assets (£0.298m) and lease receivables (£0.136m). The Council recognised an allowance for credit losses which reduced the carrying amount of these financial assets by £5.165m. Customers for goods and services are vetted, taking into account their financial position, past experience and other factors. The Council does not generally allow credit for its trade debtors.

To determine whether there has been a significant increase in the credit risk of an investment, cash or cash equivalent the Council considers a range of factors including whether its credit rating has fallen below investment grade (BBB-), declining financial performance, a fall in the value of collateral or the quality of guarantees given and any adverse business or economic conditions impacting on the investment.

The profile of these assets by credit rating (AAA is the strongest credit rating) is as follows:

Trade Debtors and AAA or AA or A or Rated Not Transferred equivalent equivalent equivalent Strong Not Rated Debt Total £m £m £m £m £m £m £m Cash and cash 0.000 50.015 24.146 0.000 0.000 0.000 74.161 equivalents Investments 0.000 56.707 40.096 0.000 70.933 0.000 167.736 Trade Debtors and 0.000 0.000 0.000 0.000 0.000 22.610 22.610 Transferred Debt Total Net 0.000 106.722 64.242 0.000 70.933 22.610 264.507 Carrying Amount

106

NOTES TO THE CORE FINANCIAL STATEMENTS

Trade Debtors and AAA or AA or A or Rated Not Transferred equivalent equivalent equivalent Strong Not Rated Debt Total £m £m £m £m £m £m £m Loss Allowance is measured at 12-month expected credit losses because:

There has been no significant increase 0.000 0.000 58.637 0.000 0.000 0.000 58.637 in credit risk since initial recognition

Loss Allowance is m easured at lifetim e expected credit losses because:

Credit risk has increased significantly 0.000 0.000 0.000 0.000 12.268 0.000 12.268 since initial recognition

Financial assets have become credit 0.000 0.000 0.000 0.000 0.000 0.000 0.000 impaired

Allowed under the simplified approach, 0.000 0.000 0.000 0.000 0.000 22.892 22.892 i.e. Trade Debtors

No Loss Allowance as relevant statutory provisions prevent default:

Counterparty is Central Government or 0.000 106.722 0.000 0.000 0.000 4.883 111.605 another local authority

No Loss Allowance, Other: Financial assets measured at Fair 0.000 0.000 0.000 0.000 59.892 0.000 59.892 Value Cash balances 0.000 0.000 5.642 0.000 0.000 0.000 5.642

Total Gross Carrying Amount 0.000 106.722 64.279 0.000 72.160 27.775 270.936

Loss Allowances 0.000 0.000 (0.036) 0.000 (1.227) (5.165) (6.428)

Total Net Carrying Amount 0.000 106.722 64.243 0.000 70.933 22.610 264.508

The past due amount for trade debtors can be analysed by age as follows:

31 Mar 2019 31 Mar 2020 £m £m Less than three months 16.957 14.995 Three to six months 1.789 2.401 Six months to one year 1.406 2.796 More than one year 5.925 7.109 Total 26.077 27.301

The gross value of trade debtors, excluding other local authorities and central government departments and agencies, is analysed as follows:

107

NOTES TO THE CORE FINANCIAL STATEMENTS

Gross Value of Trade Debtors 31 Mar 2020 £m Finance Lease Receivables 0.136 Contract Assets 0.298 0 - 30 Days 8.134 Over 30 Days 14.325 Debtors Excluding Other Local 22.893 Authorities and Government

A loss allowance for these financial assets is recognised based on the gross value of trade debtors which are more than 30 days past due and which have been or are expected to be referred for review by the Council’s Legal Services department or under the Care Act (2014). A non-recovery rate based on the historical success rate of recovering such debt, once referred, along with a factor to reflect the prevailing economic conditions, is applied to the gross value of referred debt to determine the amount of the loss allowance. The factor for current market conditions was derived by comparing the expected default rate for 2020 with the historic default rate based on information collated by the major rating agencies. This is the first year that macroeconomic information has been used in the estimation of the loss allowance for trade debt. The change to this estimation technique has been made to factor in the significant general impact of the Covid-19 pandemic on the economy and its potential to impact on the Council’s ability to recover debt.

Factor for Trade Expected Current Debtors Referred Non- Econom ic General Specific Department / Debt Category Over 30 Debt Recovery Conditions Loss Loss Total Loss Days * Rate ** Allowance Allowance Allowance £m £m % % £m £m £m Adult Care - Secured Over Property 3.031 0.000 0% 193% 0.000 0.000 0.000 Adult Care Other - Over 1 Year 2.691 2.691 62% 193% 2.691 0.000 2.691 Adult Care Other - 1 Year or Under 3.106 3.106 29% 193% 1.720 0.000 1.720 Other 5.497 0.892 29% 193% 0.494 0.261 0.755 Total 14.325 6.689 4.905 0.261 5.166 * Referred debt has been, or is expected to be, referred to Legal Services or reviewed under the Care Act (2014) ** The adjustment for economic conditions is restricted in order that the loss allowance does not exceed 100% of the value of the debt

W hilst expected credit losses relating to trade debtors are measured on a collective basis, those relating to other financial assets are determined on a case by case basis.

108

NOTES TO THE CORE FINANCIAL STATEMENTS

Reconciliation of Credit Loss Allowances

A reconciliation of the opening and closing balances of the allowances recognised for potential credit losses on the Council’s financial assets for the year ended 31 March 2020 is provided as follows:

Change due Increase to due to Decrease Modification Due to Due to recognition due to de- of cash Change in Change in of new recognition flows of the Average Significance Balance at Financial of Financial Financial Default of Credit Balance at start of year Assets Assets Assets Rates Risk end of year £m £m £m £m £m £m £m Measured at 12-month expected credit losses where:

There has been no significant increase 0.023 0.035 (0.034) 0.000 0.013 0.000 0.037 in credit risk since initial recognition

Measured at lifetime expected credit losses where:

Credit risk has increased significantly 0.530 0.486 0.000 0.000 0.244 (0.034) 1.226 since initial recognition

Financial assets have become credit 0.000 0.000 (0.034) 0.000 0.000 0.034 0.000 impaired

Allowed under the simplified approach 2.711 0.921 0.000 0.000 1.533 0.000 5.165 i.e. Debtors

Total Loss Allowance 3.264 1.442 (0.068) 0.000 1.790 0.000 6.428

£0.034m of expected credit losses were de-recognised following the write-off of the loan to Derbyshire Developments Limited.

There were no modifications to the cash flows of the Council’s financial assets during the year.

12-month expected credit losses are based on the following inputs and assumptions: • The value of the principal on maturity. • The coupon interest rate of the loan receivable. • The average probability of default in the next 12 months for that grade of investment, as determined by the major ratings agencies. This has been adjusted for current market conditions based on the ratio of the expected default rate for 2020 compared to the historic rate of default collated by the major rating agencies. • The expected loss given default is assumed to be 53% (Moody’s unsecured). • In the event of default the recoverable amount is expected to be received two years later than the due date.

Lifetime expected credit losses are based on the following inputs and assumptions: • The value of the principal on maturity. • The probability of default for that grade of investment, and the expected loss given default (Moody’s).

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NOTES TO THE CORE FINANCIAL STATEMENTS

Forward-looking information is incorporated into the determination of expected credit losses: • For specific investments – by reference to the investment grade provided by the major ratings agencies and by considering the forecast default rates for the year compared to historical rates of default. • For trade debtors – by considering the value of additional debt that is likely to be referred in addition to that which has already been referred for review and by considering the forecast default rates for the year compared to historical rates of default.

The Council does not hold any collateral as security or any other credit enhancements against the loans it has issued.

Liquidity risk The Council manages a comprehensive cash flow management system. This seeks to ensure that cash is available when it is needed. There is no significant risk that it will be unable to raise finance to meet its commitments under financial instruments.

The contractual maturity for short term and long term borrowing is as follows:

31 Mar 2020 £m Less than one year (57.075) Between one and two years 0.000 Between two and five years (16.371) Between five and ten years (30.403) More than ten years (195.636) (299.485)

Interest rate risk W ithin the Annual Treasury Management Strategy maximum limits are set for fixed and variable interest rate exposure. The interest rate profile of financial assets and liabilities is as follows:

Fixed rate Non- Variable or W eighted W eighted interest Fixed <1 Fixed > 1 average int average Total bearing year year rate period £m £m £m £m (% ) (years) Financial assets 236.256 1.000 209.215 26.041 2.21 1 Financial liabilities (299.485) 0.000 (57.075) (242.410) 3.89 18

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NOTES TO THE CORE FINANCIAL STATEMENTS

A 1% change in interest rates would have the following impact:

Impact on provision of Impact on services net worth £m £m Increase by 1% (100 basis points) 0.386 44.249 Decrease by 1% (100 basis points) (0.386) (44.249)

50. SUBSEQUENT EVENTS

Trust Funds On 23 April 2020, Cabinet approved the transfer of 47 educational charitable Trust Funds, for which the Council is the sole Trustee, to Foundation Derbyshire. The total value of these funds was £1.323m at 31 March 2020.

Springwell Community College, Staveley Springwell Community College, in Staveley, became an Academy on 1 March 2020. A lease to the Two Counties Trust, for the school land and buildings, commenced on the same date but was signed on 13 May 2020. The assets have been disposed of in the Council’s accounts as at 31 March 2020.

Fire at Harrington Junior School, Long Eaton On 28 May 2020, a fire occurred at one of the Council’s schools, Harrington Junior School, in Long Eaton. The fire is what is known as a non-adjusting event after the balance sheet date because the fire which impacted on the condition of the school assets did not occur until after the balance sheet date.

The fire affected the main block of the school, which had a balance sheet value of £2.323m at 31 March 2020. It is expected that the Council will make an insurance claim for £3.600m, representing £3.015m for rebuilding the block and replacing its contents and £0.350m for the business continuity provision of temporary classrooms. The Council’s insurance excess of £1m will be met from its insurance fund.

Covid-19 The local government sector has responded swiftly to the Covid-19 outbreak, to ensure that it is supporting residents and businesses throughout the pandemic. The Council estimates that there will be substantial cost pressures over the coming months, as well as significant loss of income and slippage in the savings programme. These additional pressures include, but are not limited to:

• Additional cost of care packages. • Increased demand for Personal Protective Equipment. • Set up and administration of the Council’s Community Response Unit. • Managing the delivery of food parcels to shielded and vulnerable residents. • Increase in fees to independent sector care providers. • Children’s Services care placements.

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NOTES TO THE CORE FINANCIAL STATEMENTS

• Additional staffing to manage workloads and staff absences as a result of the pandemic. • Business Hardship Fund. • Loss of income from countryside sites and country, household waste recycling centres and registrars. • Loss of investment income.

In early April 2020, the Council made an initial estimate of the cost pressures, including loss of income, for the period April to June 2020. The costs at that time were estimated to be in excess of £30m.

In response to the financial pressures faced by local government, the Government has provided additional funding to support local authorities, which is welcome, however, there are concerns that it may not be sufficient. It is too early in the 2020-21 financial year to understand the true extent of the financial impact, but the Council will provide reports to its Corporate Management Team and Members as part of the usual budget monitoring process.

In addition to the additional costs, there is also expected to be some slippage on the Council’s savings programme as the Council has refocused its priorities during the response to the pandemic.

There are inevitably some risks and uncertainties during the following months which are difficult to quantify at this time. These include:

• Additional placements costs for children in care – the associated costs are likely to extend beyond the initial three month cost estimates. • Extended services in schools – whether these will be eligible for support for the Government’s Covid-19 grant for schools. • Personal Protective Equipment – demand has been high so the Council has continued to purchase large volumes in the knowledge that it will be quickly consumed. • Staffing costs – redeployment to support priorities during the pandemic. • Projects – the Council has a number of ongoing projects and discretionary activity – a number of these actions will be suspended.

There was an initial period of uncertainty in financial markets during mid-to-late March 2020 and local authorities had concerns about cashflow and the ability to obtain resources to fund activities. However, the Government decision to release some elements of grant funding to local authorities earlier than scheduled has helped to ease some of these concerns and there have been signs that financial markets have absorbed the initial shock and are starting to stabilise at pre-Covid-19 levels. The Council’s cashflow forecasting indicates that there are no immediate short-term concerns, however the Council has taken the decision to lessen the demand for cash in the short term by changing and introducing more flexibility into its approach to making Advanced Pension Contributions over the three year period from 2020-21.

112 NOTES TO THE CORE FINANCIAL STATEMENTS

The Council set its 2020-21 investment income budget at £6m in February 2020, when the Bank of England’s base rate of interest was 0.75%. The base rate was reduced from 0.75% to 0.25% on 10 March 2020, with a further cut, to 0.10%, announced later in the month. This will inevitably result in the Council being unable to meet its budgeted target income, as rates are expected to remain low in the short-term. Assuming a return to normal interest rate levels, this could result in a one-off shortfall in 2020-21 of at least £3m of the anticipated interest income of £6m.

The Council has made an offer to defer rent to business tenants of Council property for a period of three months in respect of the period April to June 2020. The terms of the deferral will be to secure repayment of the rent over the period up to the end of March 2022. Whilst the proposal in itself does not result in a deficit in the Council’s income, it will mean that income to the value of approximately £0.5m will be deferred beyond Quarter 1 of the 2020-21 financial year. However, it is likely that many of these businesses will be in no position to make up the “holiday” later in 2020-21 and it is recognised that the Council will probably have to write off a significant element of the income.

The Council will need to make significant investment to stimulate the local economy as it emerges from the impact of the pandemic in the coming months. The capital programme will be reviewed and this is likely to result in additional borrowing to support capital projects which could lead to an increase in base debt repayment and interest charges of up to £5m, subject to a wider affordability test of the Council’s financial resilience and sustainability.

There were no other significant events between the balance sheet date and the approval of these financial statements which would require disclosure or adjustment of the statements.

113 ACCOUNTING POLICIES

ACCOUNTING POLICIES

INTRODUCTION

The Accounting Policies for Derbyshire County Council (the Council) have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the Chartered Institute of Public Finance and Accountancy’s (CIPFA) Code for Local Authority Accounting (the Code). W here there is no specific guidance in the Code, the Council has developed its own accounting policy which is aimed at creating information which is:

➢ Relevant to the decision making needs of users; and ➢ Reliable, in that the financial statements: o Represent fairly the financial position, financial performance and cash flows of the entity; o Reflect the economic substance of transactions, other events and conditions and not merely the legal form; o Are neutral i.e. free from bias; o Are prudent; and o Are complete in all material respects.

This document outlines how the Council will account for all income, expenditure, assets and liabilities held and incurred during the 2019-20 financial year.

The accounting policies of the Council are updated annually to reflect any changes in IFRS, including changes in International Public Sector Accounting Standards (IPSAS), HM Treasury guidance, CIPFA guidance or any other change in statute, guidance or framework impacting on the authority’s accounts.

The Accounting Policies of the Council as far as possible have been developed to ensure that the accounts of the Council are understandable, relevant, free from material error or misstatement, reliable and comparable. A Glossary of Terms can be found at the end of this document.

The document has been divided into four distinct categories which are Accounting Principles, Capital Accounting, Revenue Accounting and Treasury Management, with each policy being assigned a policy number.

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ACCOUNTING PRINCIPLES

1.1. Going Concern The Council prepares its accounts on the basis that it remains a going concern; that is that there is the assumption that the functions of the Council will continue in operational existence. In the case of a pending local government reorganisation, where assets and liabilities are due to be redistributed, the Council would still account on the basis of going concern as the provision of services would continue in another Council.

1.2. Accruals Concept The Council accounts for income and expenditure in the period in which the provision of goods or service has taken place, rather than when cash payments are received or made.

W here income and expenditure has been recognised but cash has not been received or paid, a debtor or creditor for the relevant amount is recorded in the Balance Sheet. Equally, where cash has been received or paid which is not yet recognised as income or expenditure, a creditor (income in advance) or debtor (payment in advance) is recorded in the Balance Sheet.

1.3. Cost of Services Internal support service costs (e.g. Human Resources) are apportioned across the core service areas to represent the total cost of delivering that service to the public, in accordance with the costing principles of the CIPFA Service Reporting Code of Practice 2019-20 (SerCOP).

W here possible the full cost of support services are shared between users in proportion to the benefits received, with the exception of: ➢ Corporate and Democratic Core – costs relating to the Council’s status as a multi- functional, democratic organisation. ➢ Non Distributed Costs – the cost of discretionary benefits awarded to employees retiring early and any depreciation and impairment losses chargeable on non- operational properties, or any other operational cost that cannot be reasonably attributed to a specific service.

1.4. Value Added Tax Income and expenditure treated as either capital or revenue, excludes any amounts related to VAT. All VAT collected is payable to HM Revenue & Customs and all VAT paid is recoverable from the same. Any amounts outstanding (payment or receipt) at the year-end date is held as a creditor or debtor after netting off the amounts either due or owed.

1.5. Changes in Accounting Policy W here there is a known future change in accounting policy required by the CIPFA Code, the Council will disclose the following in the notes to the accounts: ➢ The nature of the change in accounting policy; 115 ACCOUNTING POLICIES

➢ The reasons why applying the new accounting policy provides reliable and more relevant information; ➢ For both the current reporting period, and the previous year comparatives reported, the extent to which the change in accounting policy would have impacted on the financial statements if it had been adopted in that year; ➢ The amount of adjustment relating to years previous to those reported in the set of financial statements, had the proposed policy been adopted retrospectively; ➢ If retrospective application is impracticable for a particular period, the circumstances that led to the existence of that condition and a description of how and from when the change in accounting policy has been applied.

The Council will also disclose information relating to an accounting standard which has been issued but not yet adopted.

1.6. Prior Year Adjustments These typically arise from omissions and misstatements in the Council’s financial statements for one or more prior periods. For the error to be a prior year adjustment, it would need to have arisen from a failure to use or misuse, reliable information that: a) W as available when financial statements for those periods were authorised for issue; and b) Could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those financial statements.

Such errors include the effects of mathematical mistakes, misunderstanding in applying accounting policies, oversights or misinterpretations of facts, and fraud.

They may also arise for reasons such as changes in Accounting Standards, which are required to be applied retrospectively.

W here required changes are thought to be significant, an adjustment will be entered into the financial statement’s comparative year balances, and the columns headed ‘restated’. In addition full disclosure as to the nature, circumstance and value of the adjustment will be disclosed in the notes to the accounts.

Errors which are found and are not significant will not result in a prior year adjustment and will be corrected as a current year entry. In addition, errors as a result of information which was not known to the Council, or could not have reasonably been obtained by the Council when the accounts were authorised for issue will also be treated as an in year adjustment.

1.7. Unidentified Income All unidentified income received is initially coded to an income suspense account. Individual amounts below £10 are written off due to immateriality. W eekly updates of the content of the suspense accounts are circulated to finance departments, to ensure the balances are cleared quickly. Any items of income below £10,000 which remain unidentified for six months will be written off. Items above £10,000 will be written off after 12 months. 116 ACCOUNTING POLICIES

1.8. Events after the Balance Sheet Date W here there is a material post balance sheet event before the date the accounts are authorised for issue, a disclosure in the notes to the accounts will be included. If this event provides additional evidence of conditions that existed at the Balance Sheet date, and materially affects the amounts to be included in the accounts; adjusting items will be shown in the accounts.

1.9. Exceptional Items Exceptional items will have been disclosed separately on the face of the Comprehensive Income and Expenditure Statement and details will be disclosed in the notes to the accounts.

1.10. Contingent Assets and Liabilities A contingent liability arises where an event has taken place that gives the Council a possible obligation whose existence will only be confirmed by the occurrence or otherwise of uncertain future events not wholly within the control of the Council. Contingent liabilities also arise in circumstances where a provision would otherwise be made but either it is not probable that an outflow of resources will be required or the amount of the obligation cannot be measured reliably. They are not recognised in the Balance Sheet but disclosed in a note to the accounts.

A contingent asset arises where an event has taken place that gives the Council a possible asset whose existence will only be confirmed by the occurrence or otherwise of uncertain future events not wholly within the control of the Council.

Contingent assets are not recognised in the Balance Sheet but disclosed in a note to the accounts where it is probable that there will be an inflow of economic benefits or service potential.

CAPITAL ACCOUNTING

1.11. Recognition of Capital Expenditure (de-minimis Policy) In accordance with International Accounting Standard 16 (IAS 16), the Council recognises non-current assets as: ➢ Assets where it is expected that future economic benefit or service potential will flow to the Council. ➢ Assets where the cost can be measured reliably.

and defines them as :- ➢ Assets held for use in the production or supply of goods or services, rental to others, or for administrative purposes. ➢ Assets expected to be used for more than one financial period.

The initial measurement of an asset is recognised to be: ➢ Purchase price, construction cost, minimum lease payments or equivalent including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates.

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➢ Costs associated with bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. ➢ Initial estimate of the costs of dismantling and removing the asset and restoring the site on which it is located, the obligation for which the Council incurred either when the asset was acquired or as a consequence of having used the asset during a particular period for purposes other than producing inventories during that period.

Subsequent expenditure are costs incurred to add to, replace part of, or service the asset, but do not include day-to-day repairs and maintenance and are treated as capital when ➢ The expenditure will substantially increase the market value of the asset. ➢ The expenditure will substantially increase the extent to which the Council can use the asset for the purpose, or in conjunction with the functions of the Council.

W here a component is replaced, the carrying amount of the old component shall be derecognised to avoid double counting and the new component reflected in the carrying amount, subject to the recognition principles as set out above.

The Council has two levels of de-minimis for recognition of capital expenditure, £10,000 and £500,000: ➢ £10,000 and below – all expenditure at this level is deemed to be non- enhancing unless funded by a Capital grant, and therefore is charged to revenue as it is incurred. This includes initial recognition of assets and subsequent asset expenditure. ➢ Above £500,000 - expenditure meeting the definitions above will be treated as capital expenditure, either as initial recognition or as an enhancement. However, in order to ensure that the subsequent asset expenditure is enhancing the value of the asset, the Council will instruct a valuation of the asset by a Royal Institute of Chartered Surveyors (RICS) qualified valuer, and any impairment or additional enhancement recognised as necessary. ➢ Any expenditure above £10,000 and below £500,000 will be treated as capital expenditure as the amount is significant enough to increase the useful life of an asset, however is not material enough to warrant individual impairment review, until the time the asset would normally be valued.

Capital Assets are held on the balance sheet as non-current assets, unless otherwise stated.

The Council has assessed whether Voluntary Aided, Voluntary Controlled and Foundation Schools should be included within the balance sheet, based upon an assessment of ownership and control of the assets. Maintained schools are already held on the balance sheet as the Council controls these entities and therefore all transactions relating to maintained schools are recognised in these accounts. Other types of schools such as Voluntary Aided, Voluntary Controlled and Foundation schools are subject to a test of ownership. The Council recognises a school’s assets on its balance sheet where it directly owns them and/or the Council retains 118 ACCOUNTING POLICIES

substantive rights over the assets and the future economic benefits/service potential of school assets flow to the Council or rights to use the assets have been transferred from another entity.

1.12. Donated Assets These are acquired at less than fair value or transferred for nil consideration. W hen the Council receives a donated non-current asset, the initial recognition of the asset will be at fair value.

Once any condition attached to the donation has been satisfied, the credit which is the difference between any cash payment and fair value will be treated as income in the Taxation and Non-Specific Grant Income and Expenditure line in the Comprehensive Income and Expenditure Statement. To ensure there is no impact on Council Tax this will then be reversed in the Movement in Reserves Statement and credited to the Capital Adjustment Account.

Until the condition has been satisfied the credit will be recognised in the Donated Assets account. If there is no condition, the recognition of the credit in the Comprehensive Income and Expenditure Statement will occur upon acquisition of the asset.

The fair value of an asset will be assessed upon acquisition; this will be provided by a RICS qualified valuer for property assets and another relevant valuation specialist for other types of asset. After initial recognition, donated assets are treated in the same way as similar owned assets.

1.13. Non-Current Asset Classification The Council manages its assets in the following categories:

➢ Intangible Assets In line with International Accounting Standard 38 (IAS 38), the Council recognises intangible assets as non-monetary assets without physical substance, where that asset meets the capital expenditure criteria set out in Accounting Policy 1.11.

➢ Property, Plant and Equipment Assets Property Plant and Equipment Assets are subcategorised into Operational Land & Buildings, Community Assets, Vehicles Plant Furniture & Equipment, Infrastructure Assets, Non-Operational Assets, these being Surplus Assets and Assets under Construction. o Land and/or Buildings Assets. These assets are recorded, valued and accounted for based on their significant components in line with IAS 16. The Council recognises a significant asset to be 25% of the total asset base within an asset class. A component would be recognised if its expenditure in a given financial year exceeds 25% of the total value of the significant asset and has a substantially different life to the overall asset: 119 ACCOUNTING POLICIES

▪ Combined Group containing Flat Roof & Mechanical Engineering (Internal W orks i.e. boiler system) ▪ Land ▪ Temporary Buildings (sheds / portacabins) ▪ Combined group containing permanent structure, external works (i.e. car park), pitched roof and components of less than 25% of the overall structure value ▪ Other unique features (e.g. a swimming pool)

o Community Assets These are assets that the Authority intends to hold in perpetuity, that have no determinable useful life and which may, in addition, have restrictions on their disposal. There is little prospect for sale or change of use.

If the asset is used for a specific operational purpose, it does not qualify as a community asset and should be valued accordingly.

o Infrastructure Assets These include all tangible (physical) assets required within the Council’s road networks. There is no prospect for sale or alternative use of infrastructure assets; expenditure is only recoverable through continued use of the asset.

o Vehicles, Plant Furniture and Equipment Assets and Assets Under Construction These assets are also classified as Property Plant and Equipment where they do not meet the criteria for Investment Property Assets or Assets Held for Sale.

o Non-Operational (Surplus) Assets Surplus assets are assets that are not being used to deliver services, and do not meet the criteria to be classified as either investment properties or held for sale. All surplus assets under IFRS13 which came into effect and were adopted by the Council from 1 April 2015 are to be valued at Fair Value and depreciated accordingly.

➢ Investment Property Assets These are items of land and / or buildings held by the Council solely for the purpose of rental income generation or capital appreciation or both.

As such where there is a service of the Council being delivered from the property, this is not classified as Investment Property Assets. This includes where the intention of the asset is to generate economic growth to an area such as below market value rental.

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Investment property that subsequently meets the criteria within the Code to be classified as held for sale shall continue to be accounted for as an investment property, but may be reported separately as investment property held for sale.

Some Assets Under Construction may also be classified as Investment Properties where the intended eventual use is rental income generation or capital appreciation.

➢ Heritage Assets Assets that are intended to be preserved in trust for future generations because of their cultural, environmental or historical associations are classified as Heritage Assets.

➢ Assets Held for Sale The Council will classify assets as held for sale where all of the following criteria have been met: o The asset must be available for immediate sale in its present condition. However, if a sale is dependent on planning permission being obtained, reclassification is suspended until that permission has been given. o The asset’s sale is highly probable. o The asset must be actively marketed for sale. o The completion of the sale is expected within 12 months from the date of classification.

In situations where it is not necessary to carry out active marketing, for example the Council is able to identify prospective purchases willing to pay a reasonable price without marketing or because the buyer initiates the transaction (such as a right-to-buy-sale) the actively marketed test is treated as ‘not applicable’, rather than failed.

Assets which become non-operational which do not meet all of the criteria set out as assets Held for Sale will be classified as surplus. If at a later point in time the asset no longer meets the criteria of Held for Sale, it is restored to its previous classification and all transactions which would have occurred shall be retrospectively applied as though the asset had never been held for sale.

Assets meeting the criteria as Held for Sale are held as current assets on the balance sheet as income is expected within 12 months.

It is possible that assets meeting the criteria to be Held for Sale; may undergo a change in circumstance beyond the control of the Council resulting in the sale being delayed beyond 12 months. In these instances the Council follows the policies outlined for assets held for sale; however disclosure of the value for these assets is within non-current assets. Due to the circumstances around the definition, it is expected that this will occur very rarely.

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1.14. Non-Current Asset Valuation Methodology The various classifications of assets as outlined in Accounting Policy 1.13 are valued on a differing base. W here not explicitly stated otherwise, property revaluations are completed by a RICS qualified valuer (who is internal to the Council), over a ‘short period’, interpreted to mean on a five year rolling programme for each class of asset i.e. 20% of the Council’s assets are revalued at the 1 April for the financial year. However an impairment review to consider if any material degradation or other impairment has occurred during the financial year is then completed at the Balance Sheet date.

W here there is an upward revaluation, the carrying value is increased and the associated credit charged directly to the Revaluation Reserve. This is then reflected in the Comprehensive Income and Expenditure Statement as a revaluation gain. W here there is a revaluation resulting in a lower than carrying amount valuation, this is treated in line with Accounting Policy 1.15 – impairment of Non-Current Assets.

The Council, as per the reporting standard, values its assets and liabilities in accordance with section 2.10 of the Code of Practice on Local Authority Accounting in the United Kingdom to reflect the adoption of IFRS13 Fair Value Measurement at each reporting date except where adaptations to fit the public sector are detailed in the Code. However, Section 4.1 of the Code adapts IAS 16 to require that items of Property, Plant and Equipment that are operational and therefore providing a service potential for the authority are measured for their service potential at existing use value, existing use value – social housing, (depreciated) historic cost or depreciated replacement cost and not at fair value. Surplus assets are measured at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants and the measurement date. The fair value measurement assumes that the transaction to sell the asset or transfer the liability takes place either:

• In the principal market for the asset or liability • In the absence of a principal market, in the most advantageous market for the asset or liability.

Fair value of an asset or liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

W hen measuring the fair value of a non-financial asset, the Council takes into account a market participants ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Code requires all assets to be measured at Current Value and the basis of valuation will be determined using the following criteria:

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• Depreciated replacement cost – specialised assets • Existing use value – non-specialised assets • Existing use value – social housing

Fair value for the following assets: • Investment assets • Surplus assets • Assets Held for Sale (less costs to sell)

The Council uses valuation techniques, as required by the Code, which maximise the use of relevant observable inputs and minimise the use of unobservable inputs and that are appropriate in the circumstances and for which sufficient data is available.

Observable inputs are inputs that are developed using market data, such as publically available information about actual events or transactions, and that reflect the assumptions that market participants would use when pricing the asset or liability.

Unobservable inputs are inputs for which market data is not available and that are developed using the best information available about the assumptions that market participants would use when pricing the asset or liability.

The Council follows the fair value hierarchy which categorises inputs to the valuation techniques in respect of assets and liabilities into three levels for which fair value is measured or disclosed in the Council’s financial statements, these include:

• Level 1 inputs – unadjusted quoted prices in active markets for identical assets or liabilities • Level 2 inputs – inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly • Level 3 inputs – unobservable inputs for the asset or liability

Highest priority is given to Level 1 inputs (unadjusted) in active markets and lowest priority to Level 3.

Upon the revaluation of a Surplus Asset at the 31st March of the financial year, based on the inputs available at the date of valuation the valuer will establish the Code Valuation Input Level for the valuation and will compare this with the Code Valuation Input Level for the previous valuation. W here the Input Level is different from that of the previous valuation this will be specifically reported with the valuation together with a narrative description of the reasons and differing circumstances that have resulted in the change.

Valuations are completed under the Code as follows:

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➢ Intangible Assets – the Council recognises Intangible Assets at cost. The Council will only revalue intangible assets annually where there is a determinable market value for the asset.

➢ Property Plant and Equipment (PPE) – Property Assets are held at current value which is the amount that would be paid for the asset in its existing use. This requirement is met by providing a valuation on the basis of Existing Use Value (EUV) in accordance with United Kingdom Practice Statement (UKPS) 1.3 of the RICS Valuation Standards. W here no other valuation method can be used because of the specialist nature of the asset, current value is estimated using a Depreciated Replacement Cost (DRC) approach. Vehicles, Plant, Furniture and Equipment, IT Hardware, and Assets Under Construction within PPE are held at historic cost (not valued).

➢ Infrastructure Assets – the Council recognises Infrastructure Assets at Depreciated Historical Cost.

➢ Investment Property Assets – Investment Properties are annually revalued at fair value which is interpreted as the amount that would be paid for the asset in its highest and best use, i.e. market value. An investment property under construction is measured at cost until such time as its fair value can be determined reliably or its construction us complete, whichever comes first. The fair value of Investment Property held under a lease is the lease interest.

➢ Community Assets – the Council recognises Community Assets at historic cost.

➢ Heritage Assets – where it is possible to determine a valuation for Heritage Assets, then the Council will recognise the asset in the Balance Sheet at that valuation. W here a valuation has been applied to this class of assets, other than a historic valuation, a range of valuation bases have been used which include external valuations, curatorial valuations and a limited number of cases of insurance valuations. W here a curatorial valuation has been applied the valuation is dependent upon the experience and knowledge of the Derbyshire Museums Manager. However, where it is not practicable to obtain a valuation the asset will be carried at historic cost. W here information on cost or value is not available all Heritage Assets will be disclosed in the notes to the accounts, even where they are not recognised in the Balance Sheet. W here there is evidence of impairment to Heritage Assets e.g. where an item has suffered a physical deterioration or breakage or new doubts arise as to its authenticity, any impairment is recognised and measured in accordance with the Council’s general policies on impairment.

➢ Assets Held for Sale – Assets held for sale are, at initial classification and at the end of each reporting year, valued at the lower of carrying amount and fair value less costs to sell and depreciation on these assets should cease.

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➢ Surplus Assets - Surplus assets are valued at Fair Value in accordance with the Code.

1.15. Impairment of Non-Current Assets This accounting policy has been created in accordance with IAS 36. Impairment is the amount to which the carrying value of an asset exceeds the recoverable amount.

At the end of each reporting period the Council assesses whether there is any indication that an asset may be impaired.

The Council recognises impairment as: ➢ A significant decline (i.e. more than expected as a result of the passage of time or normal use) in an asset’s carrying amount during the period that is specific to the asset; ➢ Evidence of obsolescence or physical damage of an asset; ➢ A commitment by the Council to undertake a significant reorganisation; and ➢ A significant adverse change in the statutory or other regulatory environment in which the Council operates.

W here there is a balance of revaluation gains for the asset in the Revaluation Reserve, the carrying amount of the asset is written down against that balance (up to the amount of the accumulated gains). Any further impairment or if there has been no previous revaluation, the impairment is charged to revenue. This is then reversed through the Movement in Reserves Statement and charged to the Capital Adjustment Account.

1.16. Disposal of Non-Current Assets W hen an asset is disposed of or decommissioned, the value of the asset in the Balance Sheet is written off to the Comprehensive Income and Expenditure Statement as part of the gain or loss on disposal. Receipts from disposals are credited to the Comprehensive Income and Expenditure Statement as part of the gain or loss on disposal. Any revaluation gains in the Revaluation Reserve are transferred to the Capital Adjustment Account.

Sale proceeds in excess of £10,000 are categorised as Capital Receipts. Receipts are credited to the Capital Receipts Reserve, and can then only be used for new capital investment or set aside to reduce the Council’s underlying need to borrow (the Capital Financing Requirement). Receipts are transferred to the Reserve from the movement in reserves statement. The value of the asset is transferred to the Capital Adjustment Account via the Movement in Reserves Statement. Sale proceeds of £10,000 and below are credited straight to the Comprehensive Income and Expenditure Statement.

1.17. Depreciation / Amortisation Methodology In order to recognise the total cost of using fixed assets, the Council has a policy to depreciate assets on a straight line basis over their useful economic life, reducing the 125 ACCOUNTING POLICIES

value of the asset, and charging the relevant revenue service expenditure. However, under statute, depreciation is not chargeable to the tax payer, the Council removes this charge through the Movement in Reserves Statement and charges it to the Capital Adjustment Account.

The Council charges depreciation on a pro-rata basis during the year i.e. from the month of acquisition to the month of disposal.

The economic lives of assets are:

➢ Intangible Assets – 5 years.

➢ Property Plant and Equipment o Combined Group for Flat Roof and Mechanical Engineering – 20 years o Land – not depreciated o Temporary Buildings – 15 years o Modular Buildings – 25 years o Combined group for structure, external works, pitched roof and components of less than 25% of the overall structure value – 40 years o Other unique features (i.e. a swimming pool) – as required o Fixtures and Fittings – 10 years o IT Hardware – 5 years o Vehicles – 3 to 10 years

➢ Infrastructure Assets o Carriage ways – 40 years o Footways and cycle tracks – 40 years o Structures – 40 years o Lighting – 25 years o Traffic management – 25 years o Street furniture – 25 years

➢ Investment Property Assets – not depreciated

➢ Community Assets – Community Assets are assets that an authority intends to hold to perpetuity which have no determinable useful lives and as such are not depreciated.

➢ Assets Held for Sale – are not depreciated

1.18. Leases In line with IAS 17, the Council recognises a lease to be any agreement which transfers the right to use an asset for an agreed period in exchange for payment, or a series of payments.

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This includes leases, hire purchase, rental, contracts of service, service level agreements and any other arrangement where the ability to use an asset is conveyed.

1.19. Defining a Finance Lease A finance lease is where substantially all of the risks and rewards relating to ownership transfer to the lessee.

Tests to give an indication of the transfer of risk and reward are: ➢ If the lessee will gain ownership of the asset at the end of the lease term (e.g. hire purchase) ➢ If the lessee has an option to purchase the asset at a sufficiently favourable price that it is reasonably certain, at the inception of the lease, that it will be exercised ➢ If the lease term is for the major part of the economic life of the asset even if the title is not transferred. Measures to identify this are: ▪ The economic life of the asset is deemed to be that which is consistent with the class of asset in the depreciation policy. ▪ The Council recognises ‘major part’ to be 75% of the life of the asset, unless on an individual case basis this would not give a true representation of the substance of the transaction. ➢ At the inception of the lease, the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset. Measures to identify this are: ▪ Fair value of the leased asset is assessed by a RICS qualified valuer. ▪ The present value of the minimum lease payments is calculated by discounting at the rate inherent in the lease. ▪ If this rate cannot be determined the incremental borrowing rate applicable for that year is used. ▪ The Council recognises ‘substantially all’ to be 75% of the value of the asset, unless on an individual case basis this would not give a true representation of the substance of the transaction. ➢ The leased assets are of such a specialised nature that only the lessee can use them without major modifications. ➢ If the lessee cancels the lease, the losses of the lessor, associated with the cancellation are borne by the lessee. ➢ Gains or losses from the fluctuation in the fair value of the residual accrue to the lessee (e.g. in the form of a rent rebate equalling most of the sales proceeds at the end of the lease). ➢ The lessee has the ability to continue the lease for a secondary period at a rent that is substantially lower than market rent.

A suitably experienced accountant, with assistance from qualified valuers, will make a judgement based on the level of risk and reward held by the Council as to whether a lease is operating or finance.

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1.20. Defining an Operating Lease The Council recognises an operating lease to be a lease which is not a finance lease.

1.21. Lessee Accounting for a Finance Lease W here the Council is tenant in a property, or is, by definition of IFRIC 4, leasing an asset which is deemed under IAS 17 to be a finance lease the Council will recognise that asset within the asset register, and account for that asset as though it were an owned asset.

The initial recognition of the asset is at the fair value of the property, or if lower, the present value of the minimum lease payments. A liability is also recognised at this value, which is reduced as lease payments are made.

1.22. Lessor Accounting for a Finance Lease W here the Council is the lessor for a finance lease, the asset is not recognised in the asset register; however a long term debtor at the present value of minimum lease payments is recognised. Income received is split between capital - credited against the debtor, and finance income – credited to the Comprehensive Income and Expenditure Statement as interest receivable.

1.23. Lessor Accounting for an Operating Lease W here the Council is the lessor for an operating lease, it will retain the property as either an item of Property Plant and Equipment or as an Investment Property on the Balance Sheet. Any rental income is credited to the relevant service income.

1.24. Service Concession Agreements (Private Finance Initiative (PFI) and other similar contracts) PFI contracts are agreements to receive services, where the responsibility for making available the fixed assets needed to provide the services passes to the PFI contractor. PFI and similar contracts are assessed against criteria within IFRIC 12 Service Concession Arrangements to determine whether the risks and rewards incidental to ownership lie with the Council or the contractor.

Those which lie with the contractor – payments made during the life of the contract are chargeable to revenue as incurred.

Those which lie with the Council – are recognised as an asset in the Balance Sheet for the construction costs of the asset. Once recognised this asset is treated in line with all capital assets. A corresponding long term liability is also recognised at the construction value. Payments made during the life of the contract are split into finance costs, capital costs and service costs. Determining the split of payments is calculated at the inception of the contract and is based on the inherent interest rate within the original agreement. Finance costs are chargeable to the Comprehensive Income and Expenditure Statement as Interest payable. Capital Costs reduce the level of liability in the Balance Sheet. Service costs are chargeable to the relevant revenue service expenditure. Pre-payments or Dowry payments reduce the level of liability at the start of the contract. 128 ACCOUNTING POLICIES

PFI Credits are treated as general revenue government grants.

1.25. Capital Grants and Contributions The Council recognises capital grants and contributions as being related to capital assets and uses them to fund capital expenditure on those assets. Grants, contributions and donations are recognised as income at the date that the Council has satisfied the conditions of entitlement, and there is reasonable assurance that the monies will be received.

Any grant received before these recognition criteria were satisfied would be held as a creditor. Any grant which had met the recognition criteria but had not been received would be shown as a debtor. This is in line with the Accruals Concept Policy.

Once the recognition criteria above have been satisfied, capital grants are recognised as income in the Comprehensive Income and Expenditure Statement.

In order to not impact on the level of Council Tax, the Council removes the credit from the General Reserves through the Movement in Reserves Statement, and makes a credit to the Capital Grants Unapplied Reserve.

Once expenditure has been incurred on the related asset, the credit is removed from the Capital Grants Unapplied Reserve and credited to the Capital Adjustment Account.

1.26. Revenue Expenditure Funded from Capital Under Statute (REFCUS) Expenditure incurred that either may be capitalised under statutory provisions or is capital in nature but does not result in the creation of a fixed asset that is owned by the Council. REFCUS is charged as expenditure to the Comprehensive Income and Expenditure Statement in the year, however is financed from existing capital resources or by borrowing. A transfer between the Capital Adjustment Account and the Movement in Reserves Statement then reverses out the impact on the general fund balance.

1.27. Minimum Revenue Provision (MRP) The Council is not required to raise Council Tax to cover depreciation, impairment losses or amortisations. However, it is required to make an annual provision from revenue to contribute towards the reduction in its overall borrowing requirement.

The Council will provide for 2.5% of debt outstanding on all debt as at 31 March 2008. On any new debt since this date the Council will provide 2.5% of the balance on all borrowing, unless any unsupported borrowing relates to any significant assets with a life of less than 20 years. In this case an annual amount based on the expected useful life of the individual assets is used and where those assets are vehicles then an average life of five years is used.

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The Council has adopted the policy of charging MRP for PFI and Leased Assets at the value of the associated loan liability repayment each year, thus mitigating the impact to the General Reserve.

1.28. Capital Reserves The Council holds Capital Reserves for the purpose of financing capital expenditure. Reserves will be disclosed as either usable (available to fund capital expenditure) or unusable (reserves held as a result of timing differences associated with recognition of capital expenditure and related financing).

Movements in capital reserves are accounted through the Movement in Reserves Statement.

REVENUE ACCOUNTING

1.29. Recognition of Revenue Expenditure The Council recognises revenue expenditure as expenditure which is not capital.

1.30. Employee Costs In accordance with IAS 19, the Council accounts for the total benefit earned by employees during the financial year.

Employee Costs are split into 3 categories; short term benefits, termination benefits and pensions costs.

Short Term Employee Benefits ➢ Salaries and W ages – The total salary and wages earned by employees during the financial year are charged to the Comprehensive Income and Expenditure Statement. W here the amount accrued exceeds the amount paid at the 31 March, a creditor will be reflected in the accounts.

➢ Leave Owed, Accumulating Absences – The Council allows employees to earn time off in one period with the resulting cost to the Council in a later period when that time is either taken off or paid to the employee. Examples of this accumulating leave are annual leave, flexi-time and time off in lieu.

If an employee were to leave the Council, cash payment would be made for entitlements such as annual leave; this leave is termed vesting. W here no cash payment would be due, the leave is termed non-vesting.

In order to correctly reflect the cost of time owed to staff, a charge has been made to the Comprehensive Income and Expenditure Statement and a creditor accrual has been reflected in the Balance Sheet. This charge is reflective of the estimated time cost value of all accumulating leave owed to employees. Vesting leave will be charged in full; however non-vesting leave has been adjusted to reflect the turnover of staff.

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➢ Easter Bank Holiday – W hen Good Friday and/or Easter Monday fall in April, the preceding financial year only accounts for 6 or 7 bank holidays rather than the statutory 8. W hen this occurs a charge is made to the Comprehensive Income and Expenditure Statement and a creditor accrual is reflected in the Balance Sheet.

➢ Non-accumulating Absences – are periods of leave that cannot be carried forward for use in future periods. Examples include Maternity Leave, Special Leave, Sick Leave and Jury Service. The Council does not recognise non- accumulating compensated absences until the time that the absence occurs.

➢ Non-monetary Benefits – W here employees have non-monetary benefits (e.g. retirement benefits or life insurance), the associated cost of providing that benefit has been charged to the Comprehensive Income and Expenditure Statement.

Termination Benefits ➢ Redundancy Costs – The obligation to pay redundancy costs occurs when there is a formal plan to create redundancies. The plan would include the location, function and approximate number of employees affected; the termination benefits offered; and the time of implementation. W hen these recognition criteria have been met the Council recognises the costs associated with this in the service revenue expenditure and creates a creditor in the Balance Sheet. W here the payable amount is due in more than 12 months from the year end date, the costs are discounted at the rate determined by reference to market yields. In the case of an offer to encourage voluntary redundancy, the Council has recognised the estimated cost based on the expected number of employees taking the offer.

The Council will disclose details of exit packages within the notes to the accounts.

Pensions Costs ➢ Teachers’ Pension Scheme – is a defined benefit scheme administered by the Department for Education. The assets and liabilities of the Teachers' Pension Scheme are not attributable to the Council, therefore the Council accounts for the scheme as if it were a defined contribution scheme. This means that the Children and Education Services line in the Comprehensive Income and Expenditure Statement will only include the Council’s contributions payable to the scheme.

➢ Local Government Pension Scheme – is a defined benefit scheme. The liabilities of the scheme attributable to the Council are included in the Balance Sheet on an actuarial basis using the projected unit method – i.e. an assessment of the future payments that will be made in relation to retirement benefits earned to date by employees, based on assumptions such as mortality rates and employee turnover rates, and projections of earnings for current employees.

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Pension liabilities are measured using the projected unit method, discounted using the rate on high quality corporate bonds of equivalent term to the liabilities. The discount rate is the weighted average of “spot yields” on AA rated corporate bonds.

The change in the net pension liability is analysed into seven components:

• Current Service Cost – the increase in liabilities as a result of years of service earned this year – allocated in the Comprehensive Income and Expenditure Statement within the relevant service area dependant on staff employed at the Council. The current service cost includes an allowance for administration expenses • Past Service Cost – the increase in liabilities arising from current year decisions whose effect relates to years of service earned in earlier years – debited to the Comprehensive Income and Expenditure Statement as part of Non Distributed Costs • Gains/Losses on Settlements and Curtailments – the result of actions to relieve the Council of liabilities or events that reduce the expected future service or accrual of benefits of employees – debited to the Net Cost of Services in the Comprehensive Income and Expenditure Statement as part of Non Distributed Costs • Interest Cost – the expected increase in the present value of liabilities during the year as they move one year closer to being paid – debited to Net Operating Expenditure in the Comprehensive Income and Expenditure Statement • Interest Income on Plan Assets – the annual investment return on the fund assets attributable to the Council, based on an average of the expected long- term return – credited to Net Operating Expenditure in the Comprehensive Income and Expenditure Statement • Actuarial Gains and Losses – changes in the net pensions liability that arise because events have not coincided with assumptions made at the last actuarial valuation or because the actuaries have updated their assumptions – debited to the Movement in Reserves Statement. • Employer Contributions – cash paid by the Council to the Pension Fund.

In relation to retirement benefits, statutory provisions require the General Reserve to be charged with the amount payable by the Council to the Pension Fund in the year, not the amount calculated according to the relevant accounting standards. Adjustments are therefore made in the Movement in Reserves Statement.

➢ Early Retirement, Discretionary Payments – the Council has restricted powers to make discretionary awards of retirement benefits in the event of early retirements. Any liabilities estimated to arise as a result of an award to any member of staff (including teachers) are accrued in the year of the decision to make the award and accounted for using the same policies which are applied to the Local Government Pension Scheme.

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1.31. Lessee Accounting for an Operating Lease Costs associated with operating leased assets where the Council is the lessee are charged immediately to the Comprehensive Income and Expenditure Statement within the Net Cost of Services on an accruals basis.

1.32. Revenue Grants and Contributions Grants, contributions and donations (referred to as grants for the purposes of this policy) are recognised as income at the date that the Council has satisfied the conditions of entitlement, and there is reasonable assurance that the monies will be received. Any grant received before these recognition criteria were satisfied would be held as a creditor (income in advance). Any grant which had met the recognition criteria but had not been received would be shown as a debtor.

Revenue grants will either be received to be used only for a specific purpose, or can be used for general purpose. Those for a specific purpose are recognised in the Comprehensive Income and Expenditure Statement within the Net Cost of Services. Those which are for general purpose are shown within Other Operating (Income) and Expenditure in the Comprehensive Expenditure and Income Statement.

1.33. Income from Service Recipients Income from service recipients is defined as consideration that a party, which has contracted with the Council, has given in exchange for goods or services that are the output of the Council’s normal operating activities. Such a contract may be in writing, orally or in accordance with customary business practices. These may include: • Charges for service provided by the Council. • Sale of goods provided by the Council. • Fees and charges for services under statutory requirements where there is an exchange of assets or services, such as the issuing of a licence or processing of an application.

In such cases the Council recognises income when it has satisfied the performance obligation by transferring the promised goods or services to the service recipient. The point of transfer is when the service recipient takes control of the goods or benefits from the service.

The Council deems performance obligations to be satisfied over time, rather than at a point in time if any of the following criteria are met: • The service recipient simultaneously receives and consumes the benefits of a service. • The Council’s performance enhances an asset that the service recipient controls. • The Council has an enforceable right to payment for performance completed to date and that performance does not create an asset for which it has an alternative use. Such income is recognised in the Comprehensive Income and Expenditure Statement within the Net Cost of Services.

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1.34. Provisions Provisions are made where an event has taken place that gives the Council an obligation that probably requires settlement by a transfer of economic benefits, but where the timing of the transfer is uncertain. Provisions are charged to the appropriate service revenue account in the year that the Council recognises an obligation, based on the best estimate of the likely settlement. W hen payments are eventually made, it is charged to the provision. W here payment is not expected for more than 365 days after the balance sheet date, the provision has been discounted using the rate of a high quality corporate bond.

Estimated settlements are reviewed at the end of each financial year and adjustments with the Comprehensive Income and Expenditure Statement are made as required.

W here some or all of the payment required to settle a provision is expected to be met by another party (e.g. from an insurance claim), this is only recognised as income if it is virtually certain that reimbursement will be received if the obligation is settled.

The Council does not hold any general provisions.

1.35. Revenue Reserves The Council holds usable revenue reserves for the purpose of funding future expenditure. The General Reserve represents the balance of reserves to meet short term, unforeseeable expenditure and to enable significant changes in resources or expenditure to be properly managed over the period of the Five Year Financial Plan. Earmarked Reserves represent balances where approval has been received to use the reserve for a specific purpose.

Unusable revenue reserves represent timing differences such as those associated with the recognition of retirement benefits, Council tax income and financial instruments.

Movement in reserves are accounted through the Movement in Reserves Statement.

The Council publishes a separate Reserves Policy document, which is reviewed by Cabinet at least annually.

1.36. Research Costs Research costs should be treated as revenue expenditure at the point in which they are incurred, and charged to the Comprehensive Income and Expenditure Statement.

1.37. Members’ Allowances The Council in exercise of the powers and duties conferred by the Local Authorities (Members' Allowances) (England) Regulations 2003, has established a Members Allowance Scheme, outlining the allowances payable to Members of the Council. Members are reminded of the need to keep detailed supporting information, such as a diary, about every attendance for which they claim. This information should be 134 ACCOUNTING POLICIES

available for scrutiny by the Council’s Auditors or other relevant persons as and when required. The scheme is updated annually, and full details are available on the Council’s website.

The total amount paid in terms of Members Allowances is disclosed in the notes to the accounts.

1.38. Council Tax and Business Rates Recognition Council Tax and Business Rates income included in the Comprehensive Income and Expenditure Statement includes the Council’s share of accrued income recognised by billing authorities in the production of the Collection Fund Statements.

The difference between the income included in the Comprehensive Income and Expenditure Statement and the amount required by regulation to be credited to the General Reserve is taken to the Collection Fund Adjustment Account and reported in the Movement in Reserves Statement.

1.39. Inventories and W ork in Progress Inventories are included in the Balance Sheet at the lower of cost and net realisable value. Inventory is recorded in terms of average cost, with the exception of fleet parts where the cost is recorded on a first in, first out basis.

W ork in progress is subject to an interim valuation at the year-end and recorded in the Balance Sheet at cost plus any profit reasonably attributable to the works.

1.40. Loss Allowance for Expected Credit Losses The Council maintains a loss allowance for any amounts it is due to receive from its debtors or investments which might become uncollectable.

Credit risk is assessed based on the expectation of a debtor’s or an investment issuer’s ability to pay future cash flows due under the contractual terms. This risk is estimated, where possible, based on historical loss experience, the debtor’s or investment issuer’s credit rating and other impacting factors including forward-looking information.

The loss allowance for an investment is initially measured at an amount equal to the portion of the lifetime credit losses which might be expected from a default event within 12 months of the balance sheet date. If the Council considers that the risk of default on an investment has increased significantly since the investment was initially recognised it will measure the loss allowance at an amount equal to the total lifetime credit losses expected from a default event.

At each Balance Sheet date the Council makes a two-stage assessment of significant increases in credit risk since initial recognition:

• Firstly, whether there is evidence of a significant increase for an individual debtor or investment that is significant, and 135 ACCOUNTING POLICIES

• Secondly, whether there is evidence of a significant increase for groups of similar debtors or investments.

The Council adopts the simplified approach of measuring the loss allowance for debtors at an amount equal to the total lifetime credit losses expected from a default event, from the time a debtor is initially recognised.

No loss allowance is recognised for expected credit losses where the debtor or investment issuer is central government or another local authority for which relevant statutory provisions prevent default.

Loss allowances are offset against the debtor or investment amount shown as an asset. The movement in the allowance is charged to Financing and Investment Income and Expenditure in the Comprehensive Income and Expenditure Statement.

TREASURY MANAGEMENT

1.41. Definition of Treasury Management Activities The Council has adopted the following definition of Treasury Management activities:

The management of the Council’s cash flows, its banking, money market and capital market transactions; the effective control of the risks associated with those activities; and the pursuit of optimum performance consistent with those risks.

The Council regards the successful identification, monitoring and control of risk to be the prime criteria by which the effectiveness of its treasury management activities will be measured. Accordingly, the analysis and reporting of treasury management activities will focus on their risk implications for the Council.

The Council acknowledges that effective treasury management will provide support towards the achievement of its service objectives. It is therefore committed to the principles of achieving best value in treasury management, and to employing suitable performance measurement techniques, within the context of effective risk management.

1.42. Cash and Cash Equivalents Cash is represented by cash in hand and deposits with financial institutions repayable without penalty on notice of not more than 24 hours. Cash equivalents are highly liquid investments that mature in no more than three months or less from the date of acquisition and that are readily convertible to known amounts of cash with insignificant risk of change in the value.

1.43. Financial Liabilities Financial liabilities are initially measured at fair value and carried at their amortised cost.

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Annual charges to the Comprehensive Income and Expenditure Statement for interest payable are based on the carrying amount of the liability, multiplied by the effective rate of interest for the instrument. For most of the borrowings that the Council has, this means that the amount presented in the Balance Sheet is the outstanding principal repayable plus any interest accrued to 31 March and interest charged to the Comprehensive Income and Expenditure Statement is the amount payable for the year in the loan agreement.

Any premiums or discounts, incurred on the early repayment of loan debt, arising from 1 April 2007 are taken immediately to Financing and Investment Income and Expenditure in the Comprehensive Income and Expenditure Statement in the year of repayment. However, the amount is then credited or debited to the General Reserve and transferred to the Financial Instruments Adjustment Account via the Movement in Reserves Statement as required by statute.

The regulations allow that the premium or discount is amortised over periods specified in the statutory guidance. In accordance with the guidance the Council has a policy of spreading the premium or discount over the remaining term of the original loan, or a minimum of 10 years in the case of discounts. This amortisation is managed by a transfer from the Financial Instruments Adjustment Account to the General Reserve via the Movement in Reserves Statement.

W here a loan has been restructured, by a modification to the terms of the existing loan or by an exchange of debt instruments with the existing lender, and the terms are substantially different, the original financial liability is extinguished and a new financial liability is recognised. The difference between the carrying amount of the new and extinguished liability and any consideration transferred is recognised in Financing and Investment Income and Expenditure in the Comprehensive Income and Expenditure Statement.

W here the terms of a loan debt exchange or the modification to the terms of an existing loan are not substantial, the carrying amount of the liability is adjusted to the value of the remaining cash flows required by the new terms, including any premiums or discounts paid/received, discounted to present value at the original loan’s effective interest rate. Any gain or loss on modification is credited and debited to Financing and Investment Income and Expenditure in the Comprehensive Income and Expenditure Statement.

A modification of terms is deemed to be substantially different if the present value of the cash flows under the new terms, including any premiums or discounts paid/received, is at least 10% different from the present value of the cash flows under the old terms. In both cases the present value is calculated by reference to original loan’s effective interest rate.

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1.44. Financial Assets Financial assets are classified into three types according to the Council’s business model for managing those assets and the characteristics of the cash flows of the asset:

1) Financial Assets Measured at Am ortised Cost – assets where it is the Council’s intention to hold the asset to collect the contractual cash flows and those cash flows consist solely of payments of principal and interest which arise on specified dates

Loans and receivables are initially measured at fair value and carried at their amortised cost. Annual credits to the Comprehensive Income and Expenditure Statement for interest receivable are based on the carrying amount of the asset multiplied by the effective rate of interest for the instrument. For most of the loans that the Council has made, this means that the amount presented in the Balance Sheet is the outstanding principal receivable plus any interest accrued to 31 March and interest credited to the Comprehensive Income and Expenditure Statement is the amount receivable for the year in the loan agreement. However, the Council could make loans to organisations at less than market rates (soft loans).

W hen soft loans are made, a loss is recorded in the Comprehensive Income and Expenditure Statement for the present value of the interest that will be foregone over the life of the instrument, resulting in a lower amortised cost than the outstanding principal. Interest is credited at a marginally higher effective rate of interest than the rate receivable from the voluntary organisations, with the difference serving to increase the amortised cost of the loan in the Balance Sheet. Statutory provisions require that the impact of soft loans on the General Reserves is the interest receivable for the financial year – the reconciliation of amounts debited and credited to the Comprehensive Income and Expenditure Statement to the net gain required against the General Reserves is managed by a transfer to or from the Financial Instruments Adjustment Account in the Movement in Reserves Statement.

W here assets are identified as impaired because of a likelihood arising from a past event that payments due under the contract will not be made, the asset is written down and a charge made to the Comprehensive Income and Expenditure Statement. Any gains and losses that arise on the derecognition of the asset are credited/debited to the Comprehensive Income and Expenditure Statement.

Investments are represented on the balance sheet depending on their remaining life at the Balance Sheet date: • Investments entered into for 90 days or less - debited to the cash balance as cash equivalents and represented within the cash flow statement. • Investments entered into for more than 90, with less than 365 days until maturity – debited to current asset investments • Investments due to expire in more than 365 days – debited to non-current asset investments

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2) Financial Assets Measured at Fair Value Through Other Comprehensive Income – assets where it is the Council’s intention to hold the asset both to sell the asset and to collect the contractual cash flows and those cash flows consist solely of payments of principal and interest which arise on specified dates, or assets which are equity instruments which it is the Council’s intention to hold for more than 12 months and which the Council has irrevocably elected to present changes to their fair value in Other Comprehensive Income and Expenditure

These assets are initially measured and carried at fair value. W here the asset has determinable payments of dividends or interest, these are credited to the Comprehensive Income and Expenditure Statement. Interest receivable is based on the amortised cost of the asset multiplied by the effective rate of interest for the instrument. Dividends are recognised when the Council’s right to receive the payment has been established and the amount can be measured reliably.

Values are based on the following principles: o instruments with quoted market prices – the market price o other instruments with fixed and determinable payments – discounted cash flow analysis

Changes in fair value are balanced by an entry in the Financial Instrument Revaluation Reserve and the gain/loss is recognised in Other Comprehensive Income and Expenditure and the Movement in Reserves Statement. Impairment of these assets, due to expected credit losses, is charged to Financing and Investment Income and Expenditure in the Comprehensive Income and Expenditure Statement and credited to a loss allowance account which reduces the carrying value of the financial asset. Any gains and losses that arise on de-recognition of the asset are credited/debited to Financing and Investment Income and Expenditure in the Comprehensive Income and Expenditure Statement, along with any accumulated gains/losses. W here fair value cannot be measured reliably, the instrument is carried at cost (less any impairment losses).

3) Financial Assets Measured at Fair Value Through Profit or Loss – assets which are neither measured at amortised cost nor where changes to fair value are presented in Other Comprehensive Income and Expenditure

These assets are initially measured and carried at fair value. W here the asset has determinable payments of dividends or interest, these are credited to the Comprehensive Income and Expenditure Statement. Interest receivable is based on the amortised cost of the asset multiplied by the effective rate of interest for the instrument. Dividends are recognised when the Council’s right to receive the payment has been established and the amount can be measured reliably.

Values are based on the following principles: o instruments with quoted market prices – the market price

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o other instruments with fixed and determinable payments – discounted cash flow analysis Changes in fair value are balanced by an entry in Financing and Investment Income and Expenditure in the Comprehensive Income and Expenditure Statement.

1.45. Interests in Companies and Other Entities W here the Council has material interests in companies and other entities that have the nature of subsidiaries, associates and joint ventures, it is required to prepare group accounts. In the Council’s own single-entity accounts, the interests in companies and other entities are recorded as investments, i.e. at cost, less any provision for losses.

140 AUDITOR’S OPINION – DERBYSHIRE COUNTY COUNCIL ACCOUNTS

Independent Auditor’s Report to the Members of Derbyshire County Council

Report on the financial statements

Opinion W e have audited the financial statements of Derbyshire County Council for the year ended 31 March 2020, which comprise the Comprehensive Income and Expenditure Statement, the Movement in Reserves Statement, the Balance Sheet, the Cash Flow Statement and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom 2019-20.

In our opinion, the financial statements: • give a true and fair view of the financial position of Derbyshire County Council as at 31 March 2020 and of its expenditure and income for the year then ended; and • have been properly prepared in accordance with the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom 2019-20.

Basis for opinion W e conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities section of our report. W e are independent of the Council in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. W e believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Emphasis of Matter – Effect of the Covid-19 pandemic on the valuation of land and buildings and the Council’s share of Derbyshire Pension Fund’s direct property assets W e draw attention to Note 5 of the financial statements, which describes the effects of the Covid-19 pandemic on the valuation of the Council’s land and buildings and the valuation of the Council’s share of Derbyshire Pension Fund’s direct property portfolio of assets. As disclosed in Note 5 of the financial statements, the Council’s and Pension Fund’s valuers included a ‘material valuation uncertainty’ declaration within their reports as a result of the Covid-19 pandemic. Our opinion is not modified in respect of this matter.

Conclusions relating to going concern W e have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where: • the Director of Finance & ICT’s use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or

141 AUDITOR’S OPINION – DERBYSHIRE COUNTY COUNCIL ACCOUNTS

• the Director of Finance & ICT has not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the Council’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

Other information The Director of Finance & ICT is responsible for the other information. The other information comprises the Annual Governance Statement and information included in the Statement of Accounts, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

W e have nothing to report in this regard.

Responsibilities of the Director of Finance & ICT for the financial statements As explained more fully in the Statement of Responsibilities, the Director of Finance & ICT is responsible for the preparation of the Statement of Accounts, which includes the financial statements, in accordance with proper practices as set out in the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom 2019-20, and for being satisfied that they give a true and fair view. The Director of Finance & ICT is also responsible for such internal control as the Director of Finance & ICT determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

The Director of Finance & ICT is required to comply with the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom 2019-20 and prepare the financial statements on a going concern basis, unless the Council is informed of the intention for dissolution without transfer of services or function to another entity. The Director of Finance & ICT is responsible for assessing each year whether or not it is appropriate for the Council to prepare its accounts on the going concern basis and disclosing, as applicable, matters related to going concern.

Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance

142 AUDITOR’S OPINION – DERBYSHIRE COUNTY COUNCIL ACCOUNTS is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Matters on which we are required to report by exception under the Code of Audit Practice W e are required by the Code of Audit Practice to report to you if: • we issue a report in the public interest under section 24 of the Local Audit and Accountability Act 2014; • we make a recommendation under section 24 of the Local Audit and Accountability Act 2014; or • we exercise any other special powers of the auditor under sections 28, 29 or 31 of the Local Audit and Accountability Act 2014.

W e have nothing to report in these respects.

Conclusion on Derbyshire County Council’s arrangements for securing economy, efficiency and effectiveness in the use of resources

Conclusion On the basis of our work, having regard to the guidance on the specified criterion issued by the Comptroller and Auditor General in April 2020, we are satisfied that, in all significant respects, Derbyshire County Council has put in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources for the year ended 31 March 2020.

Basis for conclusion W e have undertaken our review in accordance with the Code of Audit Practice issued by the Comptroller and Auditor General, having regard to the guidance on the specified criterion issued in April 2020, as to whether the Council had proper arrangements to ensure it took properly informed decisions and deployed resources to achieve planned and sustainable outcomes for taxpayers and local people. The Comptroller and Auditor General determined this criterion as that necessary for us to consider in satisfying ourselves whether the Council put in place proper arrangements for securing economy, efficiency and effectiveness in its use of resources for the year ended 31 March 2020.

W e planned our work in accordance with the Code of Audit Practice. Based on our risk assessment, we undertook such work as we considered necessary to form a view on whether, in all significant respects, the Council had put in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources. 143 AUDITOR’S OPINION – DERBYSHIRE COUNTY COUNCIL ACCOUNTS

Responsibilities of the Council The Council is responsible for putting in place proper arrangements to secure economy, efficiency and effectiveness in its use of resources, to ensure proper stewardship and governance, and to review regularly the adequacy and effectiveness of these arrangements.

Auditor’s responsibilities for the review of arrangements for securing economy, efficiency and effectiveness in the use of resources W e are required under section 20(1)(c) of the Local Audit and Accountability Act 2014 to satisfy ourselves that the Council has made proper arrangements for securing economy, efficiency and effectiveness in its use of resources. The Code of Audit Practice requires us to report to you our conclusion relating to proper arrangements. W e are not required to consider, nor have we considered, whether all aspects of the Council’s arrangements for securing economy, efficiency and effectiveness in its use of resources are operating effectively.

Use of the audit report This report is made solely to the members of Derbyshire County Council, as a body, in accordance with part 5 of the Local Audit and Accountability Act 2014 and as set out in paragraph 44 of the Statement of Responsibilities of Auditors and Audited Bodies published by Public Sector Audit Appointments Limited. Our audit work has been undertaken so that we might state to the members of the Council those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the members of the Council, as a body, for our audit work, for this report, or for the opinions we have formed.

Delay in certification of completion of the audit W e cannot formally conclude the audit and issue an audit certificate until we have completed the work necessary to issue our assurance statement in respect of the Council’s Whole of Government Accounts consolidation pack. We are satisfied that these matters do not have a material effect on the financial statements or on our conclusion on the Council’s arrangements for securing economy, efficiency and effectiveness in its use of resources.

Mark Surridge (Dec Surridge 16, 2020 12:27 GMT)

Mark Surridge For and on behalf of Mazars LLP 45 Church Street Birmingham B3 2RT

16 December 2020

144 PENSION FUND ACCOUNTS Public

Statement of Accounts Derbyshire Pension Fund 2019-20

145 PENSION FUND ACCOUNTS EXPLANATORY FOREW ORD

Derbyshire County Council administers the Local Government Pension Scheme (LGPS) for employees, pensioners and dependents of a variety of bodies in Derbyshire, including: Councils; Police and Fire Authorities (for civilian employees); the University of Derby, Colleges and Academies (non-teaching staff); Charities and some private companies providing services to local councils.

Derbyshire Pension Fund (the Fund) has over 300 participating employers and over 100,000 members, either active contributors, pensioners or deferred pensioners (people who have stopped paying into the scheme but are not yet receiving a pension).

The benefits payable to members within the Fund are determined by regulations and are guaranteed. Assets in the Fund meet members’ benefit payments when they fall due and are accumulated through a combination of contributions from employees and employers within the Fund and from investment returns (both income and capital). The Fund continues to be cashflow positive, with combined contributions and investment income exceeding benefit payments.

At the end of March 2020, the value of the Fund’s assets had fallen to just over £4.6bn. Supportive monetary policy helped to deliver positive investment returns in the first three quarters of 2019-20 despite concerns about lower economic growth, the fall-out from the US-China Trade W ar, the uncertainty surrounding Brexit and increasing political concerns in the run up to the US Presidential Election. Global equity indices achieved all-time highs in February 2020 before the spread of the coronavirus hit markets sharply in the final quarter of the financial year, resulting in a negative investment return of 4.7% for the year ended 31 March 2020. The benefits of diversification were well demonstrated in 2019-20, with the UK equity market losing around 19% in value, whilst losses in major overseas equities markets ranged from 2%-13% in sterling terms and government bonds delivered positive returns.

During the year, the Pension Fund Team successfully used Altair, the new pension administration system implemented in the first quarter of 2019, and the rollout of the associated i-Connect system, which will enable employers to automate the submission of their data, commenced.

The actuarial valuation of the Fund’s assets and liabilities as at 31 March 2019 was undertaken during the financial year. As part of the valuation process, the Fund’s Actuary reviewed funding plans and set contribution rates for the Pension Fund’s participating employers for the period from 1 April 2020 to 31 March 2023.

A separate Annual Report is produced for the Fund which, in addition to the Fund’s accounts, includes the governance arrangements for the Fund, detailed performance information and the Fund’s approved policy statements. The Annual Report is available on Derbyshire Pension Fund’s website: https://derbyshirepensionfund.org.uk/about-the-fund/annual-report/annual-report.aspx

146 PENSION FUND ACCOUNTS EXPLANATORY FOREW ORD

Membership Statistics

Actuals

31 Mar 2018 31 Mar 2019 31 Mar 2020

Contributors 41,010 41,157 40,125

Pensioners and Dependants 27,959 30,024 31,548

Deferred Pensioners 32,099 31,136 33,164

Employers’ Contributions

Employers pay pension contributions into the Fund. The contribution rates payable by the County, Unitary and District Councils expressed as a percentage of pensionable payroll and fixed cash amounts are:

Council 2019-20 2020-21

Derbyshire County 14.5% plus £15.536m 15.5% plus £15.536m

Derby City 13.5% plus £6.981m 14.5% plus £6.981m

Amber Valley Borough 14.0% plus £1.057m 15.0% plus £1.057m

District of Bolsover 13.9% plus £0.962m 14.9% plus £0.962m

Chesterfield Borough 14.2% plus £1.991m 15.2% plus £1.991m

Derbyshire Dales 13.6% plus £0.645m 14.6% plus £0.561m

Erewash Borough 13.1% plus £1.125m 14.1% plus £0.999m

High Peak Borough 12.4% plus £1.833m 13.4% plus £1.833m

North East Derbyshire 13.7% plus £1.527m 14.7% plus £1.527m

South Derbyshire 13.8% plus £0.678m 14.8% plus £0.678m

The percentage rates that were determined by the Actuary in the valuation of the Fund at 31 March 2016, for 2017-18 to 2019-20, and in the valuation of the Fund at 31 March 2019, for 2020-21 to 2022-23, are intended to cover the cost of future service of active Fund members, with the past service deficit being addressed by an annual fixed cash amount.

Members’ Contributions

For 2019-20 the contribution rates payable by members into the Fund are determined by The Local Government Pension Scheme 2013 Regulations. The rates are between 5.5% and 12.5% of members’ pay, including non-contractual overtime, depending on their pay banding. There is no change to these rates for 2020-21.

147 PENSION FUND ACCOUNTS EXPLANATORY FOREW ORD

Investment Policy

During 2019-20 responsibility for policy matters rested with a Pensions and Investments Committee which is comprised of eight County Councillors, two Derby City Councillors and two non-voting Trade Union representatives. The Pensions and Investments Committee received advice from the Director of Finance & ICT and from one independent external adviser.

Day-to-day management of the Fund is delegated to the Director of Finance & ICT and his in-house staff, operating within a policy framework laid down by the Committee.

Policy is determined by reference to The Local Government Pension Scheme (Management and Investment of Funds) Regulations 2016, which require that advice is taken at regular intervals and place an onus on administering authorities to determine the balance of their investments and take account of risk.

The Fund has a central (strategic) benchmark asset allocation which is designed to meet the performance requirements for the level of risk agreed by the Pensions and Investments Committee. There were no changes to the benchmark allocation in 2019- 20, following the change part-way through 2018-19, which re-balanced the Fund’s assets from Growth Assets (e.g. Equities and Private Equity) to Income Assets (e.g. Infrastructure, Multi Asset Credit and Property). The Pensions and Investments Committee has a degree of flexibility around the central benchmark allocation and decides the specific allocations (weights) for each asset class at its quarterly meetings. In the table below, the column showing the benchmark return is what would have been achieved via neutrally weighted index returns, whereas the actual Fund returns are a function of both active asset allocation and active stock selection decisions.

Investment Returns

The table below shows the Fund’s returns over 1, 3, 5 and 10 years to 31 March 2020, compared to those of its strategic benchmark, as well as the impact of inflation on Fund returns.

Return Inflation Fund Real Return

Periods to Derbyshire Versus CPI Versus RPI 31 Mar 2020 Fund Benchmark CPI RPI Inflation Inflation

% pa % pa % % % %

1 Year (4.7) (5.4) 1.5 2.6 (6.2) (7.3)

3 Years 1.5 1.0 2.3 3.1 (0.8) (1.6)

5 Years 4.8 4.3 1.6 2.5 3.2 2.3

10 Years 6.7 6.4 2.2 3.0 4.5 3.7

148 PENSION FUND ACCOUNTS EXPLANATORY FOREW ORD

On a year by year basis, returns tend to fluctuate significantly according to economic and market conditions. Long-term returns are a more appropriate guide to the performance of the Fund.

The Fund out-performed over the one, three, five and ten year periods relative to the benchmark. It is important to note that the Fund delivered real returns over the five and ten year periods, with returns ahead of inflation in these periods. Real returns over the one and three year periods have been impacted by the Covid-19 pandemic.

After several years of positive returns and ever higher equity markets, returns in 2019-20 were adversely impacted by a sharp sell-off in February and March 2020 in response to the Covid-19 pandemic. The economic impact of the containment measures imposed across the globe were unprecedented, as was the resultant policy response from the central banks. In April 2020, the International Monetary Fund (IMF) projected that the global economy would contract by -3% in 2020, in excess of the contraction experienced during the 2008-09 Global Financial Crisis.

The Fund’s 2019-20 return of -4.7% compared with a return of 5.6% in 2018-19. In the twelve months to March 2020, equity returns to Sterling investors ranged from -2.1% in Japan to -18.5% in the United Kingdom, with overseas equity returns being positively impacted, on translation, by a weaker pound relative to the major overseas currencies. Returns were positive in the first nine months of the year but fell sharply in the final quarter of the year in response to the Covid-19 pandemic. This is illustrated by UK equity returns in 2019-20. In the first nine months of 2019-20, UK equities returned 8.9% but fell by 25.1% in the final quarter of the year, resulting in a total return for the year of -18.5%.

Government bond returns were positive in 2019-20, with UK Gilts returning 9.9% and UK Index-Linked returning 2.2%. These assets demonstrated their defensive qualities in Q4 2019-20, with prices rising as central banks reduced interest rates and restarted quantitative easing. However, corporate bonds and high-yield bonds fell sharply in Q4 2019-20, as investors switched into less risky assets (e.g. cash and sovereign bonds). Yield spreads widened significantly, reflecting concerns about the effect of lockdowns on corporate profits. UK Investment Grade Bonds returned -4.7% in the final quarter of 2019-20, whereas Sterling-hedged Global High Yield Bonds returned -14.2% in the final quarter.

Property (60% direct/40% indirect) returned 0.5% in 2019-20, down from 4.3% in 2018- 19. The full effect of the Covid-19 pandemic has yet to flow through to the property sector, reflecting the illiquid nature of the asset class and it is highly likely that capital values and rental income collections will be adversely impacted in 2020-21.

149 PENSION FUND ACCOUNTS EXPLANATORY FOREW ORD

Actuarial Position of the Fund

Every three years an actuarial valuation of the Fund is undertaken in accordance with the provisions of The Local Government Pension Scheme Regulations 2013. The purpose of the valuation is to review the funding strategy and ensure that the Fund has a contribution plan and investment strategy in place that will enable it to pay members’ benefits as they fall due. A valuation of the Fund was undertaken as at 31 March 2019 and set the level of contributions payable by each participating employer for the three years commencing 1 April 2020.

At 31 March 2019, the Net Assets of the Fund were £4.929bn and the Past Service Liabilities were £5.092bn. The Fund’s deficit of £0.163bn is being recovered in accordance with its Funding Strategy Statement, which is available on the Council’s website at: https://www.derbyshirepensionfund.org.uk/about-the-fund/policies-strategies-and- statements/investment-strategy.aspx

The funding level is the Fund’s ratio of assets to liabilities at the valuation date. The funding level at the 2019 valuation was 97%, a significant improvement on the funding level at the 2016 valuation of 87%.

It should be noted that the actuary adopted a risk-based approach to determine an appropriate investment return assumption for reporting the whole Fund results at the 2019 valuation, in line with the approach taken for setting contribution rates. The Fund’s assets were valued at their market value on the valuation date. On a like-for-like basis of calculation, the funding level at March 2019 would have been approximately 92% .

A number of factors, both positive and negative, impacted on the overall funding level in the 2019 valuation.

The actual investment return on the Fund’s assets for the period 31 March 2016 to 31 March 2019 was 33.3%, increasing the market value of the Fund’s assets and improved the funding position by £1.219bn over the period. Employers’ and members’ contributions paid to the Fund in the period improved the funding position by a further £0.509bn.

The accrual of new members’ benefits and interest on members’ benefits already accrued in the period since the last valuation increased the value of the Fund’s liabilities and reduced the funding position by £1.066bn in that same period. Changes in actuarial assumptions reduced the funding position by an additional £0.189bn, with an improvement in longevity assumptions being more than offset by changes in the financial assumptions used to calculate the present value of the Fund’s liabilities.

Assumptions used in the March 2019 actuarial valuation:

150 PENSION FUND ACCOUNTS EXPLANATORY FOREW ORD

Assumption

Benefit Increases (CPI Inflation) 2.30%

Career Average Revalued Earnings (CARE) Revaluation (CPI Inflation) 2.30%

CPI Price Inflation 2.30%

Discount Rate 3.60%

Future Investment Return* 3.60%

Life Expectancy at age 65 - Female - Current Pensioners*** 23.7 years

Life Expectancy at age 65 - Female - Future Pensioners** 25.1 years

Life Expectancy at age 65 - Male - Current Pensioners*** 21.6 years

Life Expectancy at age 65 - Male - Future Pensioners** 22.6 years

Salary Increases (0.70% over CPI Inflation) 3.00%

* 77% likelihood that the Fund’s investments will return at least 3.60% over the next 20 years based on asset projections. ** Future Pensioners are assumed to be aged 45 at the valuation date. *** Current Pensioners are assumed to be aged 65 at the valuation date.

The contribution rates required have been determined using a “risk based” approach. The level of contribution rate to give an appropriate likelihood of meeting an employer’s funding target, within the agreed timeframe, is determined for each employer. The full rate of an employer’s contribution provides for the cost of year-by-year accrual of benefits in respect of current Fund members and the amount required to meet a shortfall in respect of the assets required for pensions in payment (including those payable to survivors of former members) and benefits accrued by other members, which will become payable in the future (known as a past service deficiency).

Further Information

Derbyshire Pension Fund’s Investment Strategy Statement, Funding Strategy Statement, Actuarial Valuation Report, Governance Compliance Statement, Communications Policy Statement and Annual Report are available on the Derbyshire Pension Fund's website at http://www.derbyshirepensionfund.org.uk .

151 PENSION FUND ACCOUNTS FUND ACCOUNT

FUND ACCOUNT

2018-19 2019-20 £m Note £m

Dealings with Members, Employers and Others Directly Involved in the Fund 6,23 193.715 Contributions 160.457 7 10.324 Transfers in from Other Pension Funds 11.195 204.039 171.652

(160.930) Benefits 8,23 (172.634) (12.976) Payments to and on Account of Leavers 9 (17.676) (173.906) (190.310)

Net Additions/(Reductions) from Dealings with Members, 30.133 Employers and Others Directly Involved in the Fund (18.658)

(28.129) Management Expenses 10 (30.104)

Net Additions/(W ithdrawals) Including Fund Management 2.004 Expenses (48.762)

Returns on Investments 100.816 Investment Income 11 93.983 0.033 Taxes on Income 12 (0.037) 181.703 Profits and Losses on Disposal of Investments and Changes in 13 (316.288) Value of Investments

282.552 Return on Investments (222.342)

284.556 Net Increase in the Net Assets Available for Benefits During (271.104) the Year

4,644.031 Opening Net Assets of the Fund 4,928.587 4,928.587 Closing Net Assets of the Fund 4,657.483

152 PENSION FUND ACCOUNTS NET ASSETS STATEMENT

NET ASSETS STATEMENT

31 Mar 2019 31 Mar 2020 £m Note £m

4,905.599 Investment Assets 13-15 4,640.864 (4.874) Investment Liabilities 13-15 (8.768) 32.336 Current Assets 17 31.420 (4.474) Current Liabilities 18 (6.033) 4,928.587 Net Assets of the Scheme Available to Fund Benefits at the 4,657.483 Period End

The accounts summarise the transactions of the Fund and deal with the net assets at the disposal of the Pensions and Investments Committee. They do not take account of obligations to pay pensions and benefits which fall due after the end of the Fund year. The actuarial present value of promised retirement benefits is disclosed in Note 22 of these accounts.

153 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

Derbyshire Pension Fund (“the Fund”) is administered by Derbyshire County Council and is governed by Local Government Pension Scheme Regulations and associated pension legislation. The Fund is administered in accordance with the following secondary legislation:

o The Local Government Pension Scheme Regulations 2013 (as amended)

o The Local Government Pension Scheme (Transitional Provisions, Savings and Amendment) Regulations 2014 (as amended)

o The Local Government Pension Scheme (Management and Investment of Funds) Regulations 2016.

The Fund is a funded defined benefit scheme, administered locally by the Council on behalf of its own employees (except teachers, former NHS employees and new employees working in Public Health, for whom separate pension arrangements apply), Unitary and District Council employees within Derbyshire and employees of other bodies who are specifically authorised by the Regulations. On 1 April 2014, the Fund, which had previously been a final salary scheme, became a Career Average Revalued Earnings (CARE) scheme.

1. Basis of preparation

The accounts have been prepared on a going concern basis, in accordance with the CIPFA Code of Practice on Local Authority Accounting in the United Kingdom 2019-20 (“the Code”), which is based upon International Financial Reporting Standards (IFRS), which require the Fund’s accounts to comply with IAS 26 Accounting and Reporting by Retirement Benefit Plans, subject to the interpretations and adaptations for the Public Sector detailed in the Code and the Statement of Recommended Practice 2015 (“SORP”): Financial Reports of Pension Schemes insofar as it is relevant.

The accounts summarise the transactions of the Fund and deal with the net assets at the disposal of the Pensions and Investments Committee. They do not take account of obligations to pay pensions and benefits which fall due after the end of the Fund year. The actuarial present value of promised retirement benefits is disclosed in Note 22 of these accounts.

The amount of separately invested Additional Voluntary Contributions (“AVCs”) paid by members during the year and their value at the net assets statement date are not included in the Pension Fund financial statements in accordance with Regulation 4 (1)(b) of The Local Government Pension Scheme (Management and Investment of Funds) Regulations 2016.

154 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

2. Accounting policies

Contributions Employee contributions are accounted for when deducted from members’ pay. Employer normal contributions are accounted for in the period to which the corresponding pay relates. Other employer contributions, such as deficit funding contributions, are accounted for in accordance with the agreement under which they are paid, or in the absence of an agreement, on a cash basis.

Benefits Benefits and payments to leavers are accounted for in the period they fall due for payment. W here a member has a choice about the form of their benefit, the benefit is accounted for and the liability is recognised when the member notifies the Council of their decision as to what form of benefit they will take. W here a member has no choice about the form of benefit, the benefit is accounted for in the period of leaving/retirement/death, being the period in which the liability to pay the benefit arises.

Transfers W here past service liabilities do not transfer between schemes until assets/liabilities have been transferred, transfers are accounted for on a cash basis. W here trustees have agreed to accept past service liabilities in advance of the transfer of funds, the transfer is accounted for in accordance with the terms of the agreement.

Management expenses Management expenses are accounted for on an accruals basis. They are analysed in accordance with CIPFA Guidance “Accounting for Local Government Pension Scheme Management Costs (2016)”.

Investment income Dividends from quoted securities are accounted for when the securities are quoted ex- dividend. Any amount not received by the end of the reporting period is disclosed in the net assets statements as an investment asset. Rent is accounted for in accordance with the terms of the lease. Any lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease. Interest on cash and bonds is accrued on a daily basis. Income arising on the underlying investments of accumulation funds is accounted for within change in market value of investments.

Taxes on income The Fund is a registered public service scheme under Section 1(1) of Schedule 36 of The Finance Act 2004 and as such is exempt from UK income tax on interest received and from capital gains tax on the proceeds of investments sold. Income from overseas investments suffers withholding tax in the country of origin, unless exemption is permitted. Irrecoverable taxation is accounted for as a fund expense as it arises.

155 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

Foreign currency transactions Dividends, interest and purchases and sales of investments in foreign currencies are accounted for at the market exchange rate at the date of transaction. End of year market exchange rates are used to value overseas assets at the end of the accounting period.

Exchange gains and losses relating to the translation of investments are accounted for as part of change in market value included in the Fund Account and those relating to current assets and liabilities are accounted for within the Fund Account under an appropriate heading.

Cash and cash equivalents Cash comprises cash in hand and on-demand deposits. Cash equivalents are short- term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to minimal risk of changes in value.

Basis of valuation

Financial assets and liabilities are included in the net assets statement on a fair value basis as at the reporting date. A financial asset or liability is recognised in the net assets statement on the date the Fund becomes party to the contractual acquisition of the asset or liability. From this date any gains or losses arising from changes in the fair value of the asset or liability are recognised in the fund account.

The values of investments as shown in the net assets statement have been determined at fair value in accordance with the requirements of the Code and IFRS13 (Note 15). The basis of valuation of each class of financial investment asset and liability is set out in Note 15.

3. Accounting Standards issued and not yet applied

At the balance sheet date the following interpretations, new standards and amendments to existing standards have been published but not yet adopted by the Code:

• Amendments to IAS 28 Investments in Associates and Joint Ventures: Long–term Interests in Associates and Joint Ventures. The Fund has no Associates and Joint Ventures and these amendments would not have impacted on the Fund’s 2019-20 accounts. • Annual Improvements to IFRS Standards 2015 – 2017 Cycle makes amendments to IFRS 3 and IFRS 11 in relation to joint operations, to IAS 12 in respect of the income tax consequences of dividends and to IAS 23 relating to the calculation of capitalisation rate on general borrowing. The improvements would not have impacted on the Fund’s 2019-20 accounts.

156 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

• Amendments to IAS 19 Employee Benefits: Plan Amendment, Curtailment or Settlement – these amendments make it mandatory for the current service cost and the net interest for the period after a remeasurement to be determined using the assumptions used for the remeasurement and also clarifies the effect of a Plan amendment regarding what is known as the asset ceiling. These amendments to IAS 19 would not have impacted on the Fund’s 2019-20 accounts.

4. Critical judgements made in applying the accounting policies

In applying the accounting policies in Note 2, it has not been necessary to make any critical judgements.

5. Assumptions made and other estimation uncertainty

Covid-19 The outbreak of Covid-19, declared by the W orld Health Organisation as a “Global Pandemic” on 11 March 2020, has had, and continues to have, a significant impact on global financial markets. The majority of the countries in which the Fund invests have implemented severe restrictions on the movement of populations, with a resultant significant impact on economic activity. The impact of these restrictions, including the subsequent lifting of restrictions, will vary from country to country. The actions taken by the various governments and central banks around the world, including those of the United Kingdom, provide an indication of the potential severity of the downturn and post- recovery environment, which could be significantly different to past crises and take much longer. The Covid-19 outbreak has led to weaker GDP in many of the countries in which the Fund invests, and the impact is likely to differ significantly by country, and by industry and sector. It is not possible to predict the future trajectory of the Covid-19 outbreak, including the future impact on global financial markets, asset prices and bond yields.

The Fund’s basis of valuation for each class of financial investment is set out in greater detail in Note 15 to these accounts, and there have been no changes to the valuation techniques used in the year. A significant proportion of the Fund’s financial investments relate to Level 1 assets where there is a readily available daily bid market price, Level 2 assets where the fair value can be determined based on other market data or market prices, and cash deposits.

The remainder of the Fund’s financial investments relate to Level 3 assets, including unquoted private equity, infrastructure, private debt investments and indirect property assets. These assets are valued using the most recently reported net assets statement for that investment, adjusted for drawdowns and distributions to the final day of the accounting period, if the net assets statement is not produced to that date.

157 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

Level 3 assets also include the Fund’s direct property portfolio which is independently valued by Savills at market value on the final day of the accounting period, determined in accordance with the Royal Institution of Chartered Surveyors’ Valuation Standards. In their March 2020 Valuation Report, Savills noted that ‘‘market activity is being impacted in many sectors and at the valuation date we do not consider that we can rely upon previous market evidence to fully inform opinions of value. Indeed, the current response to Covid-19 means that we are faced with an unprecedented set of circumstances on which to base a judgement. Our valuations are therefore reported on the basis of ‘material valuation uncertainty’ as indicated in Global Valuation Technical and Performance Standards and Practice Guidance Applications VPS 3 and VPGA 10 of the Royal Institute of Chartered Surveyors (RICS) Red Book Global Standards, containing mandatory rules, best practice guidance and related commentary for all members undertaking asset valuations. Consequently, less certainty – and a higher degree of caution – should be attached to our valuations than would normally be the case. Given the unknown future impact that COVID-19 might have on the real estate market, we recommend that the valuation of these properties are kept under frequent review’’.

The value of the Fund’s Level 3 assets at 31 March 2020 was £2,175.402m, accounting for 46.9% of total investment assets. The estimated impact of price risk in respect of Level 3 assets is ±7.5%, equating to £161.681m at 31 March 2020. Potential price changes are determined based on the observed historical volatility of asset class returns, for example, ‘risker’ assets such as equities display greater volatility than bonds.

Actuarial present value of promised retirement benefits These accounts do not take account of obligations to pay pensions and benefits which fall due after the end of the Fund year, however, the actuarial present value of promised retirement benefits is disclosed in these accounts. Estimation of the net liability to pay pensions depends on several complex judgements relating to: the discount rate used, the rate at which salaries are projected to increase, changes in retirement ages, mortality rates and expected returns on Fund investments. The Fund has engaged Hymans Robertson LLP as its Actuary to provide expert advice about the assumptions to be applied. The effect of changes in these estimates on the Fund’s actuarial present value of promised retirement benefits is disclosed in the Report of the Actuary, in Note 22.

Impact of McCloud judgement W hen the Local Government Pension Scheme (LGPS) benefit structure was reformed in 2014, transitional protections were applied to certain older members close to normal retirement age. The benefits accrued from 1 April 2014 by these members are subject to an ‘underpin’ which means that they cannot be lower than they would have received under the previous benefit structure. The underpin ensures that these members do not lose out from the introduction of the new scheme, by effectively giving them the better of the benefits from the old and new schemes.

158 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

In December 2018, the Court of Appeal upheld a ruling (“McCloud/Sargeant”) that similar transitional protections in the Judges’ and Firefighters’ Pension Schemes were unlawful on the grounds of age discrimination. The UK Government requested leave to appeal to the Supreme Court but this was denied at the end of June 2019. In July 2019, the Chief Secretary to the Treasury confirmed that the principles of the outcome would be accepted as applying to all public service schemes.

It is expected that the remedy in the LGPS will involve the extension of some form of statutory underpin to members who were not originally protected. The protection is expected to be extended to qualifying members who have left the scheme since April 2014, as well as to active members. The remedy is expected to result in a retrospective increase in benefits for some members, which in turn would give rise to a past service cost for the Fund’s employers. In addition, it is understood that the LGPS cost cap process will be restarted once the McCloud remedy has been agreed.

Quantifying the impact of the judgement at this stage is very difficult because it will depend on the compensation awarded, members’ future salary increases, length of service and retirement age, and whether (and when) members withdraw from active service. Salary increases, in particular, can vary significantly from year to year and from member to member depending on factors such as budget restraint, job performance and career progression.

The Fund’s Actuary made no estimated allowance for the McCloud judgement in its 2019 actuarial valuation, following instruction from the LGPS Scheme Advisory Board to value liabilities in the 31 March 2019 funding valuations in line with the current LGPS Regulations benefit structure.

The Government Actuary’s Department (GAD) has estimated that the impact for the LGPS as a whole could be to increase active member liabilities by 3.2%, based on a given set of actuarial assumptions. A full description of the data, methodology and assumptions underlying these estimates is given in GAD’s paper, dated 10 June 2019. The Fund’s Actuary has adjusted GAD’s estimate to better reflect the Derbyshire Pension Fund’s (Fund) local assumptions, particularly salary increases and withdrawal rates. The revised estimate as it applies to the Fund, is that total liabilities (i.e. the increase in active members’ liabilities expressed in terms of the employer’s total membership) could be around 0.5% higher as at 31 March 2020, an increase of approximately £31.1m for the Fund as a whole. The Actuary has made an allowance for this potential increase in liabilities in its disclosure of the actuarial present value of promised retirement benefits, in Note 22, the Report of the Actuary.

These numbers are high level estimates based on scheme level calculations and depend on several key assumptions.

The impact on employers’ funding arrangements will likely be dampened by the funding arrangements they have in place. However, if the judgement is upheld then there will be unavoidable upward pressure on contributions in future years.

159 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

Indexation and equalisation of Guaranteed Minimum Pensions (GMP) Guaranteed Minimum Pension (GMP) was accrued by members of the LGPS between 6 April 1978 and 5 April 1997. The value of GMP is inherently unequal between males and females for a number of reasons, including a higher retirement age for men and GMP accruing at a faster rate for women. However, overall equality of benefits was achieved for public service schemes through the interaction between scheme pensions and the Second State Pension. The introduction of the new Single State Pension in April 2016 disrupted this arrangement and brought uncertainty over the ongoing indexation of GMPs, which could lead to inequalities between men and women’s benefits.

As an interim solution to avoid this problem, GMP rules were changed so that the responsibility for ensuring GMPs kept pace with inflation passed in full to pension schemes themselves for members reaching state pension age between 6 April 2016 and 5 April 2021. Thereafter the Government’s preferred approach is to convert GMP to scheme pension. This new responsibility leads to increased costs for schemes (including the LGPS) and hence scheme employers.

For the 2019 valuation, given the Government’s preference for conversion to scheme benefits, the Fund Actuary has assumed that all increases on GMPs for members reaching State Pension Age after 6 April 2016 will be paid for by LGPS employers (known as a full GMP indexation allowance). Full GMP indexation allowance is therefore included in the Fund Actuary’s disclosure of the actuarial present value of promised retirement benefits, in Note 22, the Report of the Actuary.

Britain leaving the European Union There remains a high level of uncertainty around the implementation of the 2016 Brexit referendum result. The United Kingdom left the European Union on 31 January 2020 and is now in a transition period until 31 December 2020, while the UK and European Union negotiate additional arrangements. Brexit developments have caused volatility in asset prices and hence also in bond yields. It is not possible to predict future Brexit developments with any degree of certainty, including the trading arrangements put in place with both the European Union and other non-European Union trading partners but these are likely to cause further volatility in asset prices and bond yields and therefore impact future actuarial assumptions. However, pronouncements from the US Federal Reserve on the future direction of US interest rates and developments with respect to the Covid-19 pandemic and in global politics have the potential to cause similar levels of volatility in asset prices and bond yields and to materially impact future actuarial assumptions.

160 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

6. Contributions

2018-19 2019-20

£m £m

Employers

Normal 96.261 89.191

Deficit Funding 57.276 29.346

Members

Normal 40.178 41.920

193.715 160.457

Employers’ contributions rates payable in 2018-19 and 2019-20 were set as part of the 2016 valuation which revealed an overall funding level of 86.7%.

On 12 June 2018 Derby City Council paid employer contributions of £39.716m to the Fund, covering the period May 2018 to March 2020. During 2018-19, normal employer contributions due from Derby City Council amounted to £14.429m. The balance of Derby City’s employer contributions received during 2018-19 were disclosed as deficit funding employer contributions and this is the main reason for the decrease in employer’s deficit funding contributions and normal contributions in 2019-20.

7. Transfers in from other pension funds

2018-19 2019-20

£m £m

Individual transfers in from other pension funds 10.324 11.195

8. Benefits

2018-19 2019-20

£m £m

Pensions 127.949 134.375

Commutation of pensions and lump sum retirement benefits 29.033 33.597

Lump sum death benefits 3.948 4.662

160.930 172.634

161 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

9. Payments to and on account of leavers

2018-19 2019-20

£m £m

Refund of contributions to members leaving the Fund 0.650 0.383

Group transfers out to other pension funds 0.048 0.000

Individual transfers out to other pension funds 12.278 17.293

12.976 17.676

Group transfers out in 2018-19 relate to the transfer of members from Derby City Council to the Department of Education.

Individual transfers out to other pension funds have increased in 2019-20, from £12.278m to £17.293m. During the year, the Pension Fund Team successfully used Altair, the new pension administration system. The speed at which transfer requests are processed has increased, with more cases being completed than in the previous year. In addition, actuarial factors for calculating cash equivalent transfer values (CETVs) were amended, with effect from November 2018, part way through the previous year. In most cases these were increased. CETVs calculated using the new factors are therefore higher than they would have been before the change.

10. Management expenses

Management expenses are analysed in accordance with CIPFA Guidance “Accounting for Local Government Pension Scheme Management Costs (2016)”.

2018-19 2019-20

£m £m

Investment management expenses 24.829 26.054

Administrative costs 2.085 2.599

Oversight and governance costs 1.215 1.451

28.129 30.104

Oversight and governance costs increased by £0.236m in 2019-20, largely reflecting higher LGPS Central Limited governance, operator and product development costs (£0.057m) and higher actuarial costs resulting from the triennial valuation (£0.161m). Oversight and governance costs includes audit fees of £0.019m (2018-19: £0.022m).

162 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

Administration costs increased by £0.514m in 2019-20, reflecting investment into the headcount and systems to support improvements in service delivery to scheme members and employers. Pension administration costs per member were £24.79 in 2019-20 (2018-19: £20.38).

Investment management expenses are analysed below:

2018-19 2019-20

£m £m

Fund value based management fees 23.653 25.129

In house management fees 0.338 0.365

Transaction costs 0.798 0.527

Custody fees 0.040 0.033

24.829 26.054

Fund value based management fees increased by £1.476m, to £25.129m in 2019-20, reflecting an increase in the average value of underlying investments during the year. Based on average investment assets across the year, management fees as a proportion of average investment assets were 0.50% in both 2018-19 and 2019-20.

Transaction costs relate to the following asset classes:

2018-19 2019-20

£m £m

Equities 0.797 0.527

Bonds 0.001 0.000

0.798 0.527

Transaction costs are incremental costs that are directly attributable to the acquisition or disposal of an investment financial asset or liability. An incremental cost is one that would not have been incurred if the scheme had not acquired or disposed of the financial instrument. Transaction costs include fees and commissions paid to agents, advisers, brokers and dealers, levies by regulatory agencies and securities exchanges and transfer taxes and duties.

Commissions decreased by £0.028m in 2019-20, to £0.301m. Stamp duty decreased by £0.244m in 2019-20, to £0.226m, reflecting the termination of the Fund’s discretionary mandate in respect of UK equities and the resultant transition into a pooled product.

Directly held investment properties are not financial assets and transaction costs in respect of them are capitalised into their initial cost, rather than expensed.

163 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

Direct transaction costs do not include debt premiums or discounts, financing costs or internal administration or handling costs.

Costs are incurred indirectly by the Fund on sales and purchases of pooled investment vehicles through the difference between the highest price a buyer of a security or other asset is willing to pay and the lowest price a seller is willing to offer (bid-offer spread).

Such costs are not separately identifiable but are reflected in the cost of these investment purchases and in the proceeds from their sale (Note 13).

11. Investment income

2018-19 2019-20

£m £m

Income from equities 65.274 46.751

Income from bonds 9.623 10.130

Net rents from properties 10.087 10.230

Income from pooled investment vehicles 13.491 24.236

Interest on cash deposits 2.341 2.636

100.816 93.983

Income from equities has decreased by £18.523m in 2019-20, to £46.751m, reflecting a reduction in UK dividend income following the transition of the Fund’s direct UK equity portfolio into an accumulation unit pooled product, which is a pooled investment vehicle where dividend income is reinvested and not distributed. Income from pooled investment vehicles has increased by £10.745m in 2019-20, to £24.236m reflecting on- going investment into income generating pooled investment vehicles, principally in respect of infrastructure and private debt funds.

Rents from properties are net of £1.198m of property expense (2018-19, net of £0.528m of property expense), which includes a £0.191m credit loss allowance adjustment for property rent debtors at the year end. The income or expense each year is the net of property management expenses recovered by service charges to tenants and irrecoverable property management expenses, for instance, rates on vacant properties.

12. Taxes on income

2018-19 2019-20

£m £m

Taxation (receivable)/payable (0.033) 0.037

164 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

From 6 April 2016 there are no notional tax charges for UK dividends. Taxes on income relate to withholding taxes in respect of overseas investment income, which are recoverable by the Fund. In 2019-20 there is an overall tax debit because of withholding tax which has yet to be reclaimed.

13. Investment assets and liabilities

The total of profits and losses on disposal of investments and changes in value of investment assets and investment liabilities has decreased the Fund’s value by £316.288m during 2019-20 (2018-19, £181.703m increase). This total includes all increases and decreases in the market value of investments held at any time during the year and profits and losses realised on sales of investments during the year.

At 31 March 2020 the Fund’s investments accounting for more than 5% of the total value of the Fund’s net assets available for benefits were: • UBS Life Europe Ex-UK Equity Tracker Fund £368.025m, representing 7.9% (2019, £489.312m, 9.9%). • LGIM UK Equity Index Fund £692.277m, representing 14.9% (2019, nil).

165 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

Currency hedging receipts and payments represent the transactions settled during the year on currency hedging contracts relating to sovereign fixed income holdings. The Fund’s objective is to decrease risk in the portfolio by entering into forward contracts to match a proportion of assets that are already held in the portfolio without disturbing the underlying assets.

At the year end, there was one currency hedging contract, with less than six months to expiry, with a gross contract value of £112.323m (2019, one contract, with less than six months to expiry, with a gross contract value of £93.094m).

Investment assets are further analysed below:

31 Mar 2019 31 Mar 2020

£m £m

Equities

UK quoted 1,014.080 165.255

UK unquoted 1.315 1.315

Overseas quoted 779.255 646.096

1,794.650 812.666

Bonds

UK quoted 455.958 462.177

UK unquoted 0.685 0.685

Overseas quoted 96.729 113.321

553.372 576.183

Pooled Investment Vehicles

Property – unquoted 139.751 149.857

Property - quoted 22.502 20.575

Other quoted 1,010.635 763.727

Other unquoted 769.990 1,785.895

1,942.878 2,720.054

Properties

UK freehold 177.750 191.550

UK leasehold 51.600 48.100

229.350 239.650

166 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

31 Mar 2019 31 Mar 2020

£m £m

Cash deposits and short term loans

Sterling cash deposits 34.215 22.525

Money market funds 0.000 5.000

Other Sterling short term loans 330.700 244.500

Foreign currency 6.188 3.085

371.103 275.110

Pooled investment vehicles are further analysed below:

31 Mar 2019 31 Mar 2020

£m £m

Pooled Investment Vehicles

Funds Invested in Property 162.253 170.432

Unit Trusts 84.719 76.563

Unitised Insurance Policies 556.771 1,107.937

Other Managed Funds 1,139.135 1,365.122

1,942.878 2,720.054

The proportion of the market value of net investment assets managed in-house and by each external manager at the year end is set out below. The analysis at 31 March 2019 has been restated to separately disclose investment assets managed by Legal and General Investment Management (LGIM).

Restated 31 Mar 2019 31 Mar 2020

£m % £m %

In-house 2,675.282 54.6 2,398.881 51.8

Colliers Capital Holdings Ltd 230.869 4.7 241.845 5.2

Legal and General Investment Management 67.459 1.4 842.719 18.2

LGPS Central Ltd 885.126 18.1 291.642 6.3

UBS Global Asset Management Life Ltd 489.312 10.0 367.990 7.9

W ellington Management International Ltd 552.677 11.2 489.019 10.6

4,900.725 100.0 4,632.096 100.0

167 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS All fund managers operating the pooled investment vehicles are registered in the United Kingdom except for: Country of registration Fund of fund manager Aberdeen Global Japan Smaller Companies Fund Luxembourg AMP Capital Infrastructure Debt Fund III Luxembourg Barings Global Private Loan Fund I Luxembourg Barings Global Private Loan Fund II Luxembourg Barings Global Private Loan Fund III Luxembourg CVC Credit Partners European Direct Lending Fund II Luxembourg Fidelity Eurozone Select Real Estate Fund Luxembourg Invesco Real Estate Europe Fund Luxembourg J P Morgan Funds Latin American Equity Fund Luxembourg M&G European Property Fund Luxembourg Macquarie European Infrastructure Fund 5 (MEIF 5) Luxembourg Macquarie European Infrastructure 5 Co Investment Fund Luxembourg Macquarie European Infrastructure Fund 6 (MEIF 6) Luxembourg Macquarie European Infrastructure 6 Co Investment Fund Luxembourg Macquarie GIG Renewable Energy Fund 2 SCSp Luxembourg Polunin Emerging Markets Developing Countries Fund Luxembourg SL Capital Infrastructure Fund II Luxembourg Baring Australia Fund Republic of Ireland CQS Credit Multi Asset Fund Republic of Ireland JO Hambro Capital Management Japan Fund Republic of Ireland Montanaro UK Smaller Companies Fund Republic of Ireland Adam Street 2017 Global Fund Program Cayman Islands 3i Infrastructure Plc Channel Islands Baird Capital Partners Europe Fund Channel Islands Epiris II LP Fund Channel Islands Foresight Solar Channel Islands HICL Infrastructure Company Limited Channel Islands International Public Partnerships Limited Channel Islands Partners Group – Global Value 2008 Fund Channel Islands Princess Private Equity Holding Limited Channel Islands The Renewables Infrastructure Group Limited Channel Islands

14. Fund investments by geographical sector (at market value)

31 Mar 2019 31 Mar 2020

£m % £m %

UK 2,600.120 53.1 2,286.628 49.4

N America 775.745 15.8 783.607 16.9

Europe 703.542 14.4 695.025 15.0

Asia and other 821.318 16.7 866.836 18.7

4,900.725 100.0 4,632.096 100.0

168 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

UK investments fell in both absolute terms and as a percentage of total investment assets between 31 March 2019 and 31 March 2020 as on-going changes to the asset allocation, together with weaker relative returns from UK assets, reduced the Fund’s exposure to UK investment assets. As the proportion of UK investment assets fell, allocations to North American, European and Asian assets increased, driven by higher levels of Private Equity, Infrastructure, Multi-Asset Credit and Indirect Property fund draw-downs. The North American geographical allocation also benefited from stronger relative returns.

15. Fair value – Basis of valuation

The basis of valuation of each class of financial investment asset and liability is set out below. There has been no change in the valuation techniques used during the year. All investment assets and liabilities have been valued using fair value techniques as follows:

o Market quoted investments, where there is a readily available market price, are valued at the bid market price on the final day of the accounting period. o Quoted bonds are valued at net market value excluding accrued income. o Pooled investment vehicles are included at closing bid price for funds with bid/offer spreads, or if single priced, at the closing price. For unquoted pooled investment vehicles this is at the price advised by the fund manager. o Unquoted investments are valued at fair value, at the price or net asset value advised by the fund manager, or for private equity investments, based on the Fund’s share of net assets at the year end, using the latest financial information available from the respective fund managers, adjusted for drawdowns and distributions to the final day of the accounting period, if the latest financial information is not produced to that date. o Property is included at market value on the final day of the accounting period, determined in accordance with the Royal Institution of Chartered Surveyors’ Valuation Standards. The property portfolio was independently valued by Savills, Property Advisers. o Fair value for investment property is calculated using the investment method of valuation, the premise of which is that all current and future income streams are capitalised at a rate or rates compared against yields achieved in market investment transactions and adjusted for individual characteristics of the subject property, based on valuer’s opinions, wholly derived from observable prices achieved in market transactions. o Forward foreign exchange contracts are valued by determining the gain or loss that would arise from closing out the contract at the reporting date by entering into an equal and opposite contract on that date.

Financial investment assets and liabilities valued using fair value techniques have been classified into the three levels of what is known as a fair value hierarchy. The hierarchy is ordered according to the quality and reliability of information used to determine recurring fair values, with Level 1 being of the highest quality and reliability.

o Level 1 – Assets and liabilities assigned to Level 1 in the fair value hierarchy are those derived from unadjusted quoted prices in active markets for identical assets 169 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS or liabilities. The Fund’s investments classified as Level 1 are quoted UK and Overseas Equities and quoted UK and Overseas Bonds issued by governments. o Level 2 – Assets and liabilities assigned to Level 2 in the fair value hierarchy are those where quoted market prices are not available, for instance in a market that is not considered to be active, or where observable valuation techniques are used to determine fair value. The Fund’s investments classified as Level 2 are quoted Pooled Investment Vehicles, Currency Hedging Contracts and unquoted LGPSC Bonds and Equities. o Level 3 – Assets and liabilities assigned to Level 3 in the fair value hierarchy are those where at least one input which could have a significant effect on an instrument’s valuation is not based on observable market data. The Fund’s investments classified as Level 3 are unquoted Pooled Investment Vehicles and Properties.

The Fund’s fair value hierarchy of investment financial assets, loans and receivables and financial liabilities is as follows:

31 Mar 2019 31 Mar 2020

£m £m

Financial Assets

Level 1

UK quoted equities 1,014.080 165.255

Overseas quoted equities 779.255 646.096

UK quoted bonds 455.958 462.177

Overseas quoted bonds 96.729 113.321

2,346.022 1,386.849

Level 2

Property - quoted pooled investment vehicles 22.502 20.575

Other quoted pooled investment vehicles 1,010.635 763.727

UK unquoted equities 1.315 1.315

UK unquoted bonds 0.685 0.685

Currency hedging contracts 0.000 3.032

1,035.137 789.334

Level 3

Property – unquoted pooled investment vehicles 139.751 149.857

Other unquoted pooled investment vehicles 769.990 1,785.895

UK freehold properties 177.750 191.550

UK leasehold properties 51.600 48.100

1,139.091 2,175.402

170 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

31 Mar 2019 31 Mar 2020

£m £m

Loans and Receivables at Amortised Cost

Sterling cash deposits 34.215 22.525

Money market funds 0.000 5.000

Other Sterling short term loans 330.700 244.500

Foreign currency 6.188 3.085

Other investment balances 14.246 14.169

385.349 289.279

Financial Assets 4,905.599 4,640.864

Financial Liabilities

Level 2

Currency hedging contracts (1.534) 0.000

(1.534) 0.000

Loans and Receivables at Amortised Cost

Other investment balances (3.340) (8.768)

(3.340) (8.768)

Financial Liabilities (4.874) (8.768)

4,900.725 4,632.096

Additional information in respect of the fair value measurement is provided below.

171 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

Valuation Observable and unobservable Key sensitivities affecting the Description of asset hierarchy Basis of valuation inputs valuation UK quoted equities Level 1 Bid market price Not required Not required

Overseas quoted equities Level 1 Bid market price Not required Not required

UK quoted bonds Level 1 Net market value excluding Not required Not required accrued income Overseas quoted bonds Level 1 Net market value excluding Not required Not required accrued income Property quoted pooled Level 2 Fair value based on price or net Not required Not required investment vehicles asset value advised by the fund manager

Other quoted pooled Level 2 Fair value based on price or net Not required Not required investment vehicles asset value advised by the fund manager

UK unquoted equities Level 2 Fair value based on price or net Not required Not required asset value advised by the fund manager

UK unquoted bonds Level 2 Fair value based on price or net Not required Not required asset value advised by the fund manager

Currency hedging contracts Level 2 Published exchange prices at the Not required Not required year-end date

172 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

Valuation Observable and unobservable Key sensitivities affecting the Description of asset hierarchy Basis of valuation inputs valuation Property unquoted pooled Level 3 Investment method whereby all Existing lease term rentals; Significant changes in rental investment vehicles current and future income streams Independent market research; growth, vacancy levels or the are capitalised at the rate or rates Covenant strength for existing discount rate could affect compared against yields achieved tenants; Actual and assumed valuations as could more general in market investment transactions vacancy levels; Estimated rental changes in market prices and adjusted for individual growth; Discount rate characteristics of the subject property, based on valuer’s opinion, wholly derived from observable prices achieved in market transactions Other unquoted pooled Level 3 At the price or net asset value Private Equity & Infrastructure: Valuations could be impacted by investment vehicles advised by the manager using the EBITDA; Revenue & EBITDA material events occurring between (private equity; latest financial information multiple; Discount for lack of the date of the financial statements infrastructure; private debt) available from the respective marketability; Control premium; provided and the year-end date, by manager, adjusted for drawdowns Discounted cash flows changes to expected cash flows, and distributions to the final date of Private Debt: Comparable and any differences between the the accounting period, if the latest valuation of similar assets; audited and unaudited accounts financial information is not Revenue & EBITDA; Discounted produced to that date cash flows; Asset security; Enterprise value estimation UK freehold and leasehold Level 3 Determined in accordance with the Existing lease term rentals; Significant changes in rental properties RICS Valuation Standards Independent market research; growth, vacancy levels or the Covenant strength for existing discount rate could affect tenants; Actual and assumed valuations as could more general vacancy levels; Estimated rental changes in market prices growth; Discount rate

173 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS Below is a reconciliation of the movement in fair value measurements within Level 3 of the fair value hierarchy from the start to the end of 2019-20:

Value at Unrealised Realised Value at 31 Mar gains/ gains/ 31 Mar 2019 Purchases Sales (losses) (losses) 2020

£m £m £m £m £m £m

Financial Assets

Level 3

Pooled investment vehicles

Property – unquoted 139.751 14.149 (6.440) 2.332 0.065 149.857

Other unquoted 769.990 1,581.873 (356.548) (324.491) 115.071 1,785.895

Properties

UK freehold 177.750 14.468 0.000 (0.668) 0.000 191.550

UK leasehold 51.600 - 0.000 (3.500) 0.000 48.100

1,139.091 1,610.490 (362.988) (326.327) 115.136 2,175.402

Unrealised and realised gains and losses are recognised in the profit and losses on disposal of investments and changes in value of investments line of the fund account.

The impact of the Covid-19 pandemic on investment values is considered in Note 5. Having analysed historical data and current market levels, the Fund has determined that the Level 3 values at 31 March 2020 above are likely to be accurate to within the ranges set out in the sensitivity analysis below:

Assessed

Value at valuation Value Value

31 Mar 2020 range on increase on decrease

£m % £m £m

Level 3 sensitivity

Direct property 239.650 15.0 275.598 203.702

Diversified multi-asset credit funds 189.421 5.0 198.892 179.950

Equity index tracking funds 842.771 2.0 859.626 825.915

Global investment grade credit fund 291.883 5.0 306.477 277.289

Indirect property 149.857 15.0 172.336 127.378

Infrastructure 261.905 12.5 294.643 229.167

Private debt 103.868 10.0 114.255 93.481

Private equity 96.047 20.0 115.256 76.838

2,175.402 7.5 2,337.083 2,013.720

174 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

16. Additional Voluntary Contributions

In accordance with Regulation 4(1)(b) of The Local Government Pension Scheme (Management and Investment of Funds) Regulations 2016, the Accounts do not include employees’ Additional Voluntary Contributions (“AVCs”). The amounts involved are not material in relation to the size of the overall Pension Fund.

Members may make AVCs which are invested separately from the Fund’s assets. These investments are specifically allocated to the provision of additional benefits for those members. These are money purchase arrangements where the member uses the invested amount to provide an additional lump sum or to purchase an annuity or buy additional benefits in the Local Government Pension Scheme.

On 1 January 2020, all members’ AVCs with Equitable Life Assurance Society were transferred to Utmost Life and Pensions. Utmost Life and Pensions has been unable to provide AVC information to align with the production of the Fund’s accounts for the year ended 31 March 2020. As a result of operational constraints, caused by the Covid-19 crisis, Utmost Life and Pensions had postponed production of financial information but this has now resumed. Utmost Life and Pensions are unable to provide a date when the financial information will be issued but will endeavour to do this to allow statutory deadlines to be met.

Including Utmost Life and Pensions funds at 31 March 2019 values, the total value of funds provided by AVC contributions at 31 March 2020 was:

31 Mar 2019 31 Mar 2020

£m £m

Utmost Life and Pensions

W ith profits fund 0.182

Unit-linked funds 0.413

Total Utmost Life and Pensions 0.595 0.595

Standard Life

Managed fund 0.761 0.657

Multi asset managed fund 0.082 0.106

Protection fund 0.084 0.088

Ethical fund 0.104 0.088

W ith profits fund 0.326 0.334

Total Standard Life 1.357 1.273

175 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

31 Mar 2019 31 Mar 2020

£m £m

Prudential Assurance Company Ltd

Deposit fund 2.427 2.290

W ith profits cash accumulation fund 4.111 4.874

Blackrock Aquila 0.040 0.000

Cash fund 0.130 0.236

Discretionary fund 0.689 0.656

Dynamic global equity passive fund 0.000 0.109

Dynamic growth funds 0.072 0.409

Fixed interest fund 0.091 0.127

Global equity fund 0.394 0.329

Index-linked fund 0.326 0.325

International equity fund 0.413 0.367

Long-term bond fund 0.000 0.006

Long-term gilt passive fund 0.195 0.229

Positive impact fund 0.000 0.131

Property fund 0.227 0.193

Socially responsible fund 0.116 0.000

UK equity fund 0.187 0.166

UK equity passive fund 0.333 0.120

Total Prudential Assurance 9.751 10.567

Clerical Medical

W ith profits fund 0.218 0.156

Unit linked fund 0.158 0.073

Total Clerical Medical 0.376 0.229

Total AVC Investments 12.079 12.664

Death in Service Cover

Utmost Life and Pensions 0.117 0.117

176 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

Death in Service cover is payable by the AVC provider where an employee has opted to pay an extra life insurance sum. The Local Government Pension Scheme Regulations 2013 require the death grant payable for contributors into the LGPS to be three times their “final pay” (in the case of a part-time employee it is three times their actual pensionable pay). The Inland Revenue limit for death in service cover is four times “final pay”, so the maximum extra amount insurable is, therefore, restricted to an amount equivalent to one times “final pay” and in the case of a part-time contributor, their actual pensionable pay. “Final pay” is defined in the above Regulations.

Utmost Standard Clerical

Life Prudential Life Medical Total

£m £m £m £m £m

Value at 31 Mar 2019 0.595 9.751 1.357 0.376 12.079

Income

Contributions received 2.260 0.021 0.005 2.286

Interest and bonuses and 0.084 (0.075) (0.002) 0.007 change in market value

Transfers in 0.049 0.000 0.000 0.049

Expenditure

Life assurance premiums 0.000 0.000 0.000 0.000

Retirement benefits (1.577) (0.009) (0.144) (1.730)

Transfers out and withdrawals 0.000 (0.021) (0.006) (0.027)

Value at 31 Mar 2020 0.595 10.567 1.273 0.229 12.664

17. Current assets

31 Mar 2019 31 Mar 2020

£m £m

Employers’ contributions due 5.374 5.275

Employees’ contributions due 1.924 2.000

Amounts owed by Derbyshire County Council 3.899 0.000

Sundry debtors 0.864 1.164

Cash balance 20.275 22.981

32.336 31.420

177 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

Employers’ and employees’ contributions due at 31 March 2020 have been received since the year-end.

As at 31 March 2020, the Fund was owed rent totalling £0.763m in respect of 2019-20 (31 March 2019, nil, net rent prepayment). W hilst the Fund’s discretionary direct property manager is actively managing the collection of this rent, the Covid-19 outbreak in Q4 2019-20 has had a significant impact on the trading and cash flows of some of the Fund’s tenants, particularly those in the Retail and Leisure Sectors. As a result, the Fund has provided a credit loss allowance of £0.191m against these rents.

18. Current liabilities

31 Mar 2019 31 Mar 2020

£m £m

Unpaid benefits 1.768 2.206

Sundry creditors 2.706 2.772

Amounts owed to Derbyshire County Council 0.000 1.056

4.474 6.034

19. Related party transactions

Derbyshire County Council The Council is the administering authority for the purposes of the Fund under The Local Government Pension Scheme Regulations 2013.

Included in management expenses in 2019-20 are charges from the Council of £2.510m (2018-19, £2.269m) for expenses incurred in respect of oversight and governance of the Fund, for Fund administration and for management of the Fund’s in-house investments.

At 31 March 2020 the Fund owed the Council £1.056m (31 March 2019, the Council owed the Fund £3.899m).

It has not been possible to apportion, on a reasonable basis, the costs and benefits of key management personnel between the Council and the Fund. However, Members’ Allowances and Officers’ Remuneration are disclosed in Notes 32 and 33 of the Council’s Statement of Accounts.

LGPS Central Limited LGPS Central Limited (LGPSC) has been established to manage investment assets on behalf of eight LGPS funds across the Midlands. It is jointly owned in equal shares by the eight administering authorities participating in the LGPSC Pool, of which the Council, as the administering authority for the Fund, is one of the shareholders.

178 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

The Fund had £1.315m invested in share capital and £0.685m in a loan to LGPSC at 31 March 2020 (31 March 2019, £1.315m and £0.685m, respectively) and was owed interest of £0.036m on the loan to LGPSC on the same date (2018-19, £0.043m).

In February 2020, the Fund transitioned its UK Corporate Bond portfolio into LGPSC’s Investment Grade Credit sub-fund and paid associated management fees of £0.004m to LGPSC in 2019-20.

LGPSC also provided advisory management services in respect of the Fund’s Japanese Equities and Asia Pacific Ex-Japanese Equities in the year. LGPSC’s advisory management services mandate for Emerging Market Equities was terminated on 15 June 2019 and its mandate to manage the Fund’s UK Equity portfolio on a discretionary basis was terminated on 14 November 2019. The charges in respect of these services totalled £0.551m in 2019-20 (2018-19, £0.764m), of which £0.065m was payable to LGPSC at 31 March 2020 (31 March 2019, £0.211m).

The Fund incurred £0.813m in respect of Governance, Operator Running and Product Development in connection with LGPSC in 2019-20 (2018-19, £0.756m), of which £0.213m was payable to LGPSC at 31 March 2020 (31 March 2019, £0.125m).

LGPSC leases office space from the Council. The lease commenced on 14 June 2018 and is for a duration of five years, with a break clause at 30 June 2021. The rental income received and receivable by the Council from LGPSC in 2019-20 amounted to £0.014m (2018-19, £0.014m). For the duration of the lease term, subsequent years’ rentals will be subject to an annual increase of 2.8%.

20. Investment commitments

At the end of the financial year, investment commitments in respect of future payments were:

31 Mar 2019 31 Mar 2020

£m £m

Unquoted investments 421.617 292.133

Other Sterling short-term loans 40.000 30.000

461.617 322.133

Unquoted investments commitments are commitments to invest in Multi-Asset Credit, Private Equity, Infrastructure and Indirect Property investments, not yet drawn-down by the managers. Revisions to the Fund’s approved Strategic Asset Allocation Benchmark between July 2015 and January 2019 increased the proportion of the Fund’s investments required to be invested in Multi-Asset Credit, Private Equity, Infrastructure and Indirect Property investments from 5% to 22% in 2019-20.

179 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

This has resulted in a higher level of unquoted investment commitments than has been the case in previous years. The reduction of £129.484m between 31 March 2019 and 31 March 2020 principally reflects the payment of a USD 110 million commitment to an infrastructure fund on 1 April 2019.

Since the year-end, the Fund has signed-up to an additional £25m private equity commitment.

The Other Sterling short-term loans commitments are commitments to make short-term investments at the year-end. There is no provision or creditor for these amounts in the financial statements as the legal obligation to pay was not fulfilled at 31 March 2020. These commitments will be met using funds received from the maturity of earlier investments and therefore have no impact on the financial position reported.

There were two such commitments at 31 March 2020 (2019, four), which were secured to take advantage of higher rates available at that time because of a cash shortage in the market.

21. Financial instruments

Many requirements of the financial instruments standards (IAS 39, IAS 32, IFRS 7 and IFRS 9), which govern the recognition, measurement, presentation and disclosure of financial instruments, are not applicable to the Fund’s accounts, since all material financial instruments are carried in the net assets statement at fair value.

Nature and extent of risks arising from financial instruments

Certain financial risks are a necessary and appropriate component of the investment strategy of the Fund in order for it to achieve the targeted long term rate of return assumed by the Fund Actuary. This rate of return is used in drawing up the Funding Strategy Statement and setting employer contribution rates.

The overall financial risk for the Fund is that its assets could be insufficient to meet its liabilities to pay benefits. At the financial instrument level, the Fund’s key risks are:

o Credit risk – the risk of the Fund suffering loss due to another party defaulting on its financial obligations;

o Liquidity risk – the risk that funds might not be available to meet commitments because the Fund’s assets are not readily marketable or easily turned into cash;

o Market risk - the risk that the Fund’s financial instruments may suffer an adverse change in value, which is common to an entire class of assets or liabilities.

180 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

Responsibility for Fund investments has been delegated to the Council’s Pensions and Investments Committee (the Committee). Day to day responsibility for the management of the Fund is delegated to the Director of Finance and ICT; the investments are managed by a combination of internal and external investment managers and investment advice is provided by an independent investment advisor. The Fund’s overall risk management procedures focus on the unpredictability of financial markets, and are structured to implement suitable controls to minimise these risks.

As required by the Fund’s Investment Strategy Statement, the Fund is invested in accordance with the Strategic Asset Allocation guidelines, to maximise returns within appropriate levels of risk, taking into account the Fund’s liabilities and projected cashflows.

These Strategic Asset Allocation guidelines were approved by the Pensions and Investments Committee, following an external asset/liability study.

Economic background, market returns, asset allocation, investment activity, investment strategy and investment performance are monitored and reviewed by the Committee on a quarterly basis.

Credit risk

The Fund is primarily exposed to credit risk through its daily treasury management activities and through its forward currency contracts, which address the currency risk on overseas bonds. Credit risk on cash deposits and short term loans arises from deposits with banks, financial institutions and UK government and local authorities. Credit risk on forward currency contracts arises from contracts with large banks.

There is also a credit risk in respect of income due at the year end from the Fund’s direct property tenants. As at 31 March 2020, the Fund was owed rent totalling £0.763m (31 March 2019, nil, net rent prepayment). Whilst the Fund’s discretionary direct property manager is actively managing the collection of this rent, the Covid-19 outbreak in Q4 2019-20 has had a significant impact on the trading and cash flows of some of the Fund’s tenants, particularly those in the Retail and Leisure Sectors. As a result, the Fund has provided a credit loss allowance of £0.191m against these rents, calculated using a non-recovery rate of 25%, based on information provided by the in-house investment management team.

Rental Expected Income Non- General Total Loss Debt Recovery Loss Allowance 31 Mar 2020 Rate Allowance 31 Mar 2020 £m % £m £m Property Rental Income 0.763 25.0 0.191 0.191

181 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

A reconciliation of the opening and closing balances of the potential credit losses on the Fund’s financial assets for the year ended 31 March 2020 is provided as follows:

Change in average Value at default risk Value at 31 Mar 2019 rate 31 Mar 2020 £m £m £m Credit Loss Allowance 0.000 0.191 0.191

Treasury activities - The Fund places security of capital and liquidity ahead of investment return. Credit risk on treasury activities is minimised through the Fund’s annual Treasury Management Strategy, which requires that deposits are not made with financial institutions unless they meet identified minimum credit criteria, in accordance with the Fitch, Moody’s and Standard & Poor’s Ratings Services and are approved counterparties on this basis. Investments with local authorities, the Government’s Debt Management Office, UK Treasury Bills and Certificates of Deposit are also permissible. The Fund has agreed maximum loan durations and joint limits for each counterparty.

The limits for financial institutions are based on the above credit assessment and are approved each year. The financial institutions’ credit ratings and supplementary information are monitored throughout the year to ensure compliance with the policy.

The Treasury Management Investment Strategy for 2019-20 was approved by Full Council on 6 February 2019 and by the Pensions and Investments Committee on 8 May 2019.

The Fund’s maximum exposure to credit risk in relation to its treasury/cash deposit investments and operating cash in banks, building societies, money market funds and UK local authorities of £298.091m (2019, £391.378m) cannot be assessed generally, as the risk of any institution failing to make interest payments or repay the principal sum will be specific to each individual institution. Recent experience has shown that it is rare, generally, for such entities to be unable to meet their commitments; the approach to risk assessment taken by the Fund makes this remote.

A risk of non-recovery applies to all of the Fund’s deposits, but there was no evidence at 31 March 2020 that this was likely to occur. No breaches of the Fund’s counterparty criteria occurred during the reporting period. At 31 March 2020, the Fund had £22.981m in its operational account with Lloyds Bank.

Forward currency contracts - Credit risk from forward currency contracts is minimised by limiting the extent of these contracts to managing the currency risk on overseas sovereign bonds, the value of which comprise 2% (2019, 2% ) of investment assets at the year end and by selecting large banks as the counterparties. The forward currency contract at the year end was with Bank of New York Mellon.

182 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

The maximum credit risk exposure on forward currency contracts is the full amount of the foreign currency which the Fund pays when the settlement occurs, should the counterparty fail to pay the amount which it is committed to pay the Fund. At the year end, there was one currency hedging contract, with less than six months to expiry, with a gross contract value of £112.323m (2019, one contract, with less than six months to expiry, with a gross contract value of £93.094m). The Fund does not expect any losses from non-performance by any of its counterparties in relation to this contract.

Other financial assets - Bonds mainly include investments in UK and US Government securities and certain corporate bond funds. The Fund does not expect any losses from non-performance by any of its counterparties in relation to these financial assets.

Market prices generally incorporate credit assessments into valuations and risk of loss is implicitly provided for in the carrying value of the financial assets as they are marked to market. The market value of financial assets represents the Fund’s exposure to credit risk in relation to those assets.

The selection of high quality counterparties, brokers and financial institutions minimises credit risk that may occur during settlement of transactions.

Liquidity risk

The Fund continues to be cash flow positive, with combined contributions and investment income exceeding benefit payments. There is, therefore, no present requirement to realise assets in order to meet liabilities to pay benefits, as these are more than covered by contributions and investment income, and there is net cash available for investment. The Fund does, however, sell investments from time to time as part of normal investment management activities.

The majority of the Fund’s investments are readily marketable and may be easily realised, if required. Emphasis is placed on treasury deposits of up to six months’ duration to ensure that longer term investment strategy is not compromised by lack of liquidity. Listed equities may also be liquidated at short notice, normally two working days. Holdings of investments which may be less easy to realise are limited. Current Pensions and Investments Committee guidelines limit investments in property to 12%, multi asset credit to 8%, infrastructure to 11% and private equity to 6% .

Sufficient funds are retained on instant access accounts to ensure that payment of benefits and the settlement of investment transactions can be made without the need to borrow.

The Fund manages its liquidity position using a comprehensive cash flow management system, as required by the CIPFA Code of Practice.

183 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

Maturity analysis for liabilities at the year end:

- There were no financial liabilities within the portfolio at the year end other than those that arose from the trading of investments. Such liabilities fall due within 12 months of the year end.

- There were no derivative financial liabilities held at the year-end in respect of currency hedging contracts (2019, one).

Market risk

The Fund is exposed to market risk because it is inherent in the investments the Fund makes. It can result from changes in such measures as interest and exchange rates and changes in prices due to factors other than these. This risk cannot be eliminated but it can be reduced.

The objective of market risk management is to manage and control market risk exposure to within acceptable parameters, whilst optimising the return on risk. Excessive volatility in market risk is managed through diversification. Risk reduction arises from the different investments not being perfectly correlated.

The Fund has applied diversification at various levels; that is, diversification between countries, asset classes, sectors and individual securities. Diversification reduces both the upside and downside potential and allows for more consistent performance under a wide range of economic conditions.

Risk of exposure to specific markets is limited by adhering to defined ranges within the asset allocation guidelines, which are monitored and reviewed by the Committee on a quarterly basis.

Interest rate risk – This risk primarily impacts on the valuation of the Fund’s bond holdings and to a lesser degree the return it receives on cash held. A rise in interest rates would have the following effects:

o investments at variable rates – the interest income credited to the Fund Account would rise;

o investments at fixed rates – the fair value of the assets would fall.

The Fund has a number of strategies for managing interest rate risk. Interest rates and the durations of the bond portfolios are monitored during the year, by the Fund’s in- house and external managers. W ithin the annual Treasury Management Strategy, maximum limits are set for fixed and variable interest rate exposure. During periods of falling interest rates, and where economic circumstances make it favourable, fixed rate investments may be taken for longer periods to secure better long term returns, subject to liquidity requirements. 184 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

Other price risk – Other price risk originates from factors specific to the individual instrument or to its issuer, or from factors affecting all instruments in the market.

The Fund manages price risk by holding fixed interest bonds, index-linked stocks and property and by holding a diversified equity portfolio spread geographically, across market sectors and across investments. Contracts specify the level of risk to be taken by the external Fund managers investing in overseas equities. These external managers are monitored by in-house managers.

A Fund specific benchmark has been drawn up, which is designed to meet the Fund’s performance requirements for the level of risk agreed by the Committee. Economic background, asset allocation, recent transactions, investment strategy and performance are monitored by the Committee on a quarterly basis.

The impact of the Covid-19 pandemic on investment values is considered in Note 5.

The table below quantifies the level of price risk that the Fund’s investment assets and liabilities at 31 March 2020 are potentially exposed to. Potential price changes are determined based on the observed historical volatility of asset class returns, for example, ‘riskier’ assets such as equities display greater potential volatility than bonds. The potential volatilities are consistent with a one standard deviation movement in the change in value of the assets over the last three years. The volatility shown for total investment assets and liabilities in both tables below incorporates the impact of correlation across asset classes, which dampens volatility, therefore the value on increase/decrease figures of the asset classes will not sum to the total assets figure.

185 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

Value at Value Value

31 Mar 2020 Change on increase on decrease

£m % £m £m

Underlying asset type

UK Government bonds 229.907 4.57 240.414 219.400

UK index-linked bonds 232.270 8.16 251.223 213.317

Corporate bonds 292.568 3.60 303.100 282.036

Overseas index-linked bonds 64.381 6.64 68.656 60.106

Overseas bonds 51.972 0.00 51.972 51.972

UK equities 740.993 14.66 849.623 632.363

Overseas equities 1,544.907 11.77 1,726.743 1,363.071

Private equity 151.285 9.23 165.249 137.321

Infrastructure 339.931 5.19 357.573 322.289

Multi asset credit 293.289 5.62 309.772 276.806

Cash 275.110 0.12 275.440 274.780

Other investment balances 5.401 - - -

Properties (non-financial instruments) 410.082 2.55 420.539 399.625

4,632.096 4,981.819 4,282.373 Total investment assets and liabilities 7.55

Currency risk - The Fund is exposed to currency risk through its overseas equity shares, its overseas bonds and its foreign currency holdings. The overseas equity exposure is not hedged; if Sterling weakens this currency exposure will make a positive contribution to the Fund’s performance in Sterling terms. The overseas sovereign bond exposure is hedged.

The table below quantifies the level of currency risk that the Fund’s overseas investment assets at 31 March 2020 are potentially exposed to. Currency risk on overseas sovereign bonds is managed using forward currency contracts, therefore sovereign overseas bonds have been excluded from the table. Potential aggregate currency exposure within the Fund at 31 March 2020 is determined using a currency “basket” based on the Fund’s currency mix at that date. The weight of each currency multiplied by the change in its exchange rate relative to Sterling is summed to create the aggregate currency change of the basket. The outcomes are then applied to all unhedged overseas assets.

186 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

Value at Value Value

31 Mar 2020 Change on increase on decrease

£m % £m £m

Underlying asset type

Overseas equities 1,544.907 8.90 1,682.404 1,407.410

Overseas bonds 32.639 8.90 35.544 29.734

Overseas cash 3.085 10.31 3.403 2.767

Overseas investment assets 1,580.631 8.88 1,720.991 1,440.271

22. Actuarial Present Value of Promised Retirement Benefits

Below is an extract from the Report of the Actuary, showing the actuarial present value of the Fund’s promised retirement benefits, required by the Code. If an actuarial valuation has not been prepared at the date of the financial statements, IAS26 requires the most recent valuation to be used as a base and the date of the valuation disclosed. The valuation is carried out using assumptions in line with IAS19 and not the Pension Fund’s funding assumptions.

“The promised retirement benefits at 31 March 2020 have been projected using a roll forward approximation from the latest formal funding valuation as at 31 March 2019. The approximation involved in the roll forward model means that the split of benefits between the three classes of member may not be reliable. However, I am satisfied that the total figure is a reasonable estimate of the actuarial present value of benefit promises.

Note that the figures below include an allowance for the “McCloud Ruling”, i.e. an estimate of the potential increase in past service benefits arising from this case affecting public service pension schemes.

The figures below include both vested and non-vested benefits, although the latter is assumed to have a negligible value. Further, I have not made any allowance for unfunded benefits.

31 Mar 2019 31 Mar 2020

£m £m

Active members 3,847.000 2,829.000

Deferred members 1,309.000 1,164.000

Pensioners 1,956.000 2,240.000

Present Value of Promised Retirement Benefits 7,112.000 6,233.000

187 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

It should be noted the above figures are appropriate for the Administering Authority only for the preparation of the Pension Fund accounts. They should not be used for any other purpose (i.e. comparing against liability measures on a funding basis or a cessation basis).

Assum ptions The assumptions used are those adopted for the Administering Authority’s IAS19 report and are different as at 31 March 2020 and 31 March 2019. I estimate that the impact of the change in financial assumptions to 31 March 2020 is to decrease the actuarial present value by £592m. I estimate that the impact of the change in demographic and longevity assumptions is to decrease the actuarial present value by £233m.

Financial assumptions

31 Mar 2019 31 Mar 2020 Year ended (% p.a.) % %

Pension Increase Rate 2.50 1.90

Salary Increase Rate 3.00 2.60

Discount Rate 2.40 2.30

Longevity assumptions Life expectancy is based on the Fund's VitaCurves with improvements in line with the CMI 2018 model, with an allowance for smoothing of recent mortality experience and a long term rate of improvement of 1.25% p.a. for both women and men. Based on these assumptions, the average future life expectancies at age 65 are summarised below:

Males Females

Current Pensioners 21.6 years 23.7 years

Future Pensioners* 22.6 years 25.1 years *Future pensioners are assumed to be aged 45 at the latest formal valuation as at 31 March 2019.

Please note that the longevity assumptions have changed since the previous IAS26 disclosure for the Fund.

Commutation assumptions An allowance is included for future retirements to elect to take 50% of the maximum additional tax-free cash up to HMRC limits for pre-April 2008 service and 75% of the maximum tax-free cash for post-April 2008 service.

Sensitivity Analysis CIPFA guidance requires the disclosure of the sensitivity of the results to the methods and assumptions used. The sensitivities regarding the principal assumptions used to measure the liabilities are set out below:

188 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

Approximate Approximate increase to monetary Sensitivity to the assumptions for the year ended liabilities amount 31 Mar 2020 % £m

0.5% p.a. increase in the Pension Increase Rate 9 592

0.5% p.a. increase in the Salary Increase Rate 1 43

0.5% p.a. decrease in the Real Discount Rate 10 639

The principal demographic assumption is the longevity assumption. For sensitivity purposes, I estimate that a 1 year increase in life expectancy would approximately increase the liabilities by around 3-5%.”

Barry Dodds FFA 14 April 2020 For and on behalf of Hymans Robertson LLP

23. Participating Employers

The participating employers with active members in the Fund are Derbyshire County Council (which is also the Administering Authority), Derby City Council (Unitary Authority), District Councils (which are Scheduled Bodies), further Scheduled Bodies and Admission Bodies. The Unitary and District Councils are listed in the foreword of this Annual Report. Other participating employers are listed on the following pages.

Contributions and benefits, by participating employer type, in respect of the year, are as follows:

2018-19 2019-20

Benefits Contributions Benefits Contributions

£m £m £m £m

Derbyshire County Council 77.156 69.871 82.316 71.426

Scheduled Bodies 78.346 119.592 84.389 84.347

Admission Bodies 5.428 4.252 5.929 4.684

160.930 193.715 172.634 160.457

The contribution rates payable by the County, Unitary and District Councils expressed as a percentage of pensionable payroll and fixed cash amounts are:

189 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

Council 2019-20 2020-21

Derbyshire County 14.5% plus £15.536m 15.5% plus £15.536m

Derby City 13.5% plus £6.981m 14.5% plus £6.981m

Amber Valley Borough 14.0% plus £1.057m 15.0% plus £1.057m

District of Bolsover 13.9% plus £0.962m 14.9% plus £0.962m

Chesterfield Borough 14.2% plus £1.991m 15.2% plus £1.991m

Derbyshire Dales 13.6% plus £0.645m 14.6% plus £0.561m

Erewash Borough 13.1% plus £1.125m 14.1% plus £0.999m

High Peak Borough 12.4% plus £1.833m 13.4% plus £1.833m

North East Derbyshire 13.7% plus £1.527m 14.7% plus £1.527m

South Derbyshire 13.8% plus £0.678m 14.8% plus £0.678m

The contribution rates payable by other Scheduled Bodies, expressed as a percentage of pensionable payroll are:

Total contribution rate % of pensionable payroll 2019-20 2020-21

Scheduled Bodies

Peak District National Park Authority 14.0 plus £0.224m 15.0 plus £0.224m

Chesterfield Crematorium 17.8 plus £0.020m 17.8 plus £0.029m

Derbyshire Police Authority 12.9 plus £1.465m 13.9 plus £1.465m

Derbyshire Fire & Rescue 13.2 plus £0.170m 14.2 plus £0.170m

Derby Homes Limited 13.4 plus £0.290m 14.4 plus £0.290m

Rykneld Homes 16.4 17.4

University of Derby 12.7 plus £0.745m 16.3

190 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

Total contribution rate % of pensionable payroll 2019-20 2020-21

Chesterfield College 13.9 plus £0.158m 15.0 plus £0.166m

Derby College 13.7 plus £0.441m 16.5 plus £0.350m

Landau Forte College 12.3 plus £0.003m 13.5

Akaal Academy Trust Derby 19.5 18.5

Aldecar Infant School 21.0 18.3

Allenton Primary 27.9 26.9

All Saints Infants School 21.0 17.8

All Saints Junior School 21.0 19.1

All Saints Catholic Voluntary Academy (Glossop) 21.0 16.0

Alvaston Junior Academy 21.0 22.7

Arboretum Primary School 21.0 18.6

Ash Croft Primary Academy 21.0 20.4

Ashgate Croft School - from 1 June 2019 21.0 21.0

Ashwood Spencer Academy 21.0 20.3

Bishop Lonsdale Church of England Primary School 25.8 24.8

Bolsover Church of England Junior 21.0 17.9

Breadsall Hill Top Primary 21.0 20.4

Brimington Infant School 18.9 19.9

Brimington Junior School 18.3 19.3

Brookfield Academy 20.0 21.0

Brookfield Primary School - from 1 May 2019 21.0 21.0

Brooklands Primary School - from 1 July 2019 21.0 21.0

Carlyle Infant and Nursery School - from 1 August 2019 21.0 21.0

Cavendish Close Junior 21.0 19.5

Cavendish Multi-Academy Trust 19.3 21.1

Chaddesden Park Primary 21.0 23.3

Chellaston Academy - to 31 March 2020 20.9 0.0

Chellaston Fields - from 1 August 2019 21.0 21.0

Christ Church Church of England Primary School 21.5 21.5

Christ The King Catholic Voluntary Academy (Alfreton) 21.0 17.4

191 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

Total contribution rate % of pensionable payroll 2019-20 2020-21

Church Gresley Infant and Nursery School 21.0 21.0 - from 1 September 2019 Cloudside Junior 21.0 17.4

Cotton Farm Primary Academy 21.0 21.5

Da Vinci Academy 21.0 24.1

Darley Churchtown Primary 21.0 17.5

David Neiper Academy 17.8 18.8

Derby Cathedral School 21.0 19.3

Derby Manufacturing University Technical College 21.1 20.1

Derby Moor Community Sports College 21.0 17.4

Derby Pride Academy 15.5 16.5

Derby St Chads C of E (VC) Nursery and 21.0 19.3 Infant School Derwent Primary 21.0 20.8

Djanogly Learning Trust (Multi-Academy Trust) 21.0 17.9

Dovedale Primary School (W illows Academy Trust) 20.9 20.9

Ecclesbourne Academy 22.6 23.6

Eckington Junior 19.4 19.4

Eckington School 21.0 19.2

English Martyrs Catholic Voluntary Academy 18.5 19.5

Esteem Multi-Academy Trust 21.0 16.6

Firs Estate Primary School 21.0 18.5

Frederick Gent 21.0 18.3

Friesland School 21.0 16.5

Gamesley Primary School 21.0 17.9

Grampian Primary Academy 19.2 20.2

Granville Sports College 21.0 15.5

Griffe Field Primary School 21.0 22.4

Hackwood Primary Academy - from 1 September 2019 21.0 21.0

Hardwick Primary 21.0 19.4

Heanor Gate Science College 20.5 21.5

Heath Primary School 21.0 16.4

Heritage High School 21.0 18.0

192 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

Total contribution rate % of pensionable payroll 2019-20 2020-21

Hilton Primary School 21.0 17.0

Hodthorpe Primary School - from 1 August 2019 21.0 21.0

Holbrook Primary School 22.4 22.4

Holme Hall Primary School - from 1 April 2019 21.0 21.0

Hope Valley College 23.3 24.3

Horsley W oodhouse Primary School 21.0 18.8

Howitt Primary Community School 21.0 18.2

Inkersall Primary School 20.2 21.2

Immaculate Conception Academy Trust 20.7 19.7

Ironville and Codnor Park Primary 21.0 17.0

Ivy House School - from 1 October 2019 21.0 21.0

John King Infant 21.0 17.3

John Port Academy 20.4 21.4

John Flamsteed Community School 20.2 21.2

Kilburn Junior School 21.0 16.8

Kirk Hallam Academy 18.4 19.4

Kirkstead Junior Academy 21.0 18.0

Lakeside Community Primary School 21.0 19.1

Landau Forte Moorhead Academy 19.6 20.6

Langwith Basset Junior Academy 21.0 16.1

Lawn Primary School - from 1 December 2019 21.0 21.0

Leesbrook School 19.7 20.7

Longford C of E Primary School - from 1 August 2019 21.0 21.0

Longwood Community Infant 21.0 16.3

Loscoe C of E Primary School and Nursery 21.0 16.7

Mary Swanwick Primary 21.0 20.2

Merrill Academy 22.5 23.5

Newbold Church of England Primary School 17.3 18.3

New W hittington Primary 21.0 16.2

Noel Baker School 21.0 23.5

North W ingfield Primary and Nursery Academy 21.0 21.0 - from 1 March 2020 Odyssey Trust (Multi-Academy Trust) 21.0 19.7

193 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

Total contribution rate % of pensionable payroll 2019-20 2020-21

Old Hall Junior School - from 1 June 2019 21.0 21.0

Outwood Academy Newbold 20.2 21.2

Peak Multi Academy Trust - from 1 April 2019 20.9 20.3

Peartree Junior 21.0 21.6

Pennine W ay Junior Academy 19.7 20.7

QEGS Multi-Academy Trust 21.6 22.6

Ravensdale Junior School - from 1 September 2019 21.0 21.0

Redhill Primary School 20.7 21.7

Reigate Park Primary Academy 21.0 18.7

Richardson Endowed Primary School - from 1 June 2019 21.0 21.0

Sawley Infant School (W illows Academy Trust) 20.0 21.0

Sawley Junior School (W illows Academy Trust) 21.2 21.2

Scargill Primary 21.0 19.9

Shardlow Primary School (W illows Academy Trust) 23.3 22.3

Shirebrook Academy 20.4 21.4

Somercotes Infant School 21.0 16.1

Somerlea Park Junior 21.0 20.0

Springwell Community College - from 1 March 2020 21.0 21.0

St Alban's Catholic Voluntary Academy (Derby) 21.0 20.3

St Andrew's School - from 1 September 2019 21.0 21.0

St Anne's Catholic Voluntary Academy (Buxton) 21.0 19.2

St Benedict Voluntary Catholic Academy 22.0 23.0

St Charles' Catholic Primary Voluntary 21.0 17.5 Academy (Hadfield) St Edward's Catholic Academy 20.0 20.0

St Elizabeth's Catholic Voluntary Academy 21.0 17.3 (Belper) St George's Primary (New Mills) 21.0 19.2

St George's Voluntary Catholic Academy 20.1 21.1

St Giles Church of England Aided Primary School 20.3 21.3

St Giles Primary (Killamarsh) 21.0 16.9

St Giles School - from 1 November 2019 21.0 21.0

St John Fisher Catholic Voluntary Academy 21.7 22.7

194 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

Total contribution rate % of pensionable payroll 2019-20 2020-21

St John Houghton Catholic Voluntary Academy 20.6 21.6

St Joseph's Catholic Primary School (Matlock) 20.0 21.0

St Joseph's Catholic Primary School 17.6 18.6 Voluntary Academy St Joseph's Catholic Voluntary Academy (Derby) 21.0 20.1

St Laurence Primary School 21.2 21.2

St Margaret's Catholic Voluntary Academy (Glossop) 21.0 16.5

St Mary's Catholic High School Academy Trust 21.4 22.4

St Mary's Catholic Voluntary Academy (Derby) 21.0 20.3

St Mary's Catholic Voluntary Academy (Glossop) 21.0 19.0

St Mary's Catholic Voluntary Academy (New Mills) 21.0 15.5

St Peter's C of E Aided Junior School 21.0 21.0 - from 1 March 2020 St Philip Howard Catholic Voluntary Academy 20.2 20.2

St Thomas Catholic Voluntary Academy (Ilkeston) 21.0 17.5

St Thomas More Catholic Voluntary Academy 21.0 18.2 (Buxton) St W erburgh's C of E Primary School 21.0 21.0 - from 1 October 2019 Street Lane Primary School 21.0 19.0

Swanwick Hall School 20.2 21.2

Temple Normanton Primary 21.0 24.8

The Bolsover Academy 20.9 21.9

The Green Infant School - from 1 November 2019 21.0 21.0

The Long Eaton Academy 19.9 20.9

The Mease at Hilton - from 1 September 2019 21.0 21.0

The Ormiston Ilkeston Enterprise Academy 23.7 24.7

The Pingle Academy 21.0 18.9

The Ripley Academy 25.0 26.0

Tupton Hall School - from 1 October 2019 21.0 21.0

Tupton Primary and Nursery Academy - from 1 July 2019 21.0 21.0

Turnditch Church of England Primary School 20.2 21.2

195 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

Total contribution rate % of pensionable payroll 2019-20 2020-21

Village Primary School 21.0 20.1

W alter Evans Primary School 21.0 21.1

W alton Holymoorside Primary School - from 1 June 2019 21.0 21.0

W alton On Trent C of E Primary and Infant School 21.0 19.0

W est Park Academy 21.2 22.2

W estfield Infant School - from 1 June 2019 21.0 21.0

W illiam Gilbert Endowed (C of E) Primary School 21.2 22.2

W ilsthorpe School 21.0 19.0

W oodlands School 19.9 20.9

W oodthorpe Cof E Primary School - from 1 June 2019 21.0 21.0

W yndham Primary Academy (Boulton Primary School) 16.7 17.7

Zaytouna Primary School (previously Al-Madinah School) 20.0 20.0

Town and Parish Councils - Group 1 23.8 18.2

Town and Parish Councils - Group 2 17.2 18.8

196 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

Town and Parish Councils

Group 1 Group 2

Ashbourne Town Council Alfreton Town Council

Belper Town Council Blackwell Parish Council

Clay Cross Parish Council Breaston Parish Council

Dronfield Town Council Bretby Parish Council

Eckington Parish Council Burnaston Parish Council

Killamarsh Town Council Clowne Parish Council

Matlock Town Council Codnor Parish Council

New Mills Town Council Darley Dale Town Council

Old Bolsover Town Council Draycott Parish Council

Pinxton Parish Council Glapwell Parish Council

Shirebrook Town Council Hatton Parish Council

Staveley Town Council Heanor and Loscoe Town Council

W hitwell Parish Council Heath and Holmewood Parish Council

W irksworth Town Council Kilburn Parish Council

North W ingfield Parish Council

South Normanton Parish Council

Stenson Fields Parish Council

Tibshelf Parish Council

Ticknall Parish Council

Tupton Parish Council

W ingerworth Parish Council

W oodville Parish Council

The contribution rates payable by Admission Bodies, expressed as a percentage of pensionable payroll are:

197 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS Total contribution rate % of pensionable payroll 2019-20 2020-21

7 Hills Leisure Trust - to 31 March 2019 25.3 0.0

Accuro FM Ltd - from 1 January 2019 32.4 32.4

Action for Children 28.1 16.5

Active Nation 28.2 plus £0.002m 19.8

Alliance Environmental Services Ltd 16.9 18.3

Amber Valley Schools Sports Partnership 21.0 23.0

Arvato Government Services Ltd (Derbyshire Dales) 13.8 0.0

Arvato Government Services (Sefton) Ltd 14.5 14.5

Aspens Services Ltd 28.2 plus £0.001m 28.5

Balfour Beatty Power Networks Ltd 16.5 17.3

Balfour Beatty (Derby BSF) 20.6 25.1

Barnados - to 30 June 2019 21.1 0.0

Belper Leisure Centre Ltd 31.4 33.3 plus £0.001m

Caterlink Ltd (Abercrombie) 27.8 28.8

Caterlink Ltd (Cavendish Learning Trust) 28.3 29.6

Caterlink Ltd (De Ferrers Trust) 30.2 31.7

Caterlink Ltd (Lea Primary) 30.2 12.9

Caterlink Ltd (Reigate Primary) 27.9 58.9

Caterlink Ltd (Shirebrook/Stubbin W ood) 31.0 16.0

Caterlink Ltd (St Marys) 31.2 33.4

Caterlink Ltd (St Marys High School) 31.8 31.2

Caterlink Ltd (Swanwick Hall) 32.6 57.4

Chesterfield Care Group 25.2 3.3

Churchill Contractor Services (St Marys) 33.9 40.0

Clean Slate (UK) Ltd (Pottery) 30.4 plus £0.001m 16.4

Compass Contract Services (UK) Ltd 10.3 17.0

Compass Services Ltd (DCC) 16.5 18.5

Connex Community Support 33.3 21.0

Crich Tramway Museum Society 24.0 plus £0.015m 30.8

CSE Education 29.0 26.3

Derby County Community Trust 23.1 35.5 plus £0.008m

Derby Museums & Arts Trust 19.2 22.1

198 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS Total contribution rate % of pensionable payroll 2019-20 2020-21

Derbyshire Building Control 23.2 26.1

Derbyshire Student Residences Ltd 25.8 27.7

Elite Cleaning and Environmental Services 32.8 0.0 - to 31 August 2019 EMH Homes 22.3 plus £0.161m 21.1

Futures Homescape Ltd 23.9 plus £0.103m 33.4 plus £0.095m

Interserve Catering Services Ltd 20.2 24.4

Interserve Integrated Services Ltd 7.1 20.8

KCLS Ltd (Tibshelf Infant) 34.4 6.9

Kier Ltd 13.8 13.8

Leisure Amber Valley BC 13.8 13.8

Leisure High Peak BC - to 31 March 2019 1.4 0.0

Legacy Leisure Ltd (Parkwood Leisure) Erewash 27.2 26.8

Macintyre Care Ltd 2.0 0.0

Mellors Catering 25.7 0.0

Mellors Catering (Murray Park) 31.7 30.0

Mitie Facilities Services Ltd 37.7 30.2

Norwest Holst Ltd (previously Vinci plc) 33.0 9.5

NSL Ltd 22.3 20.3

Office Care Ltd (Brookfield Academy) 29.5 0.0 - to 11 October 2019 Parkwood Leisure Limited (Buxton Pavillion) 24.3 24.3

Platform Housing Group (previously known as W aterloo 28.1 plus £0.018m 11.4 Housing Group) RM Education Ltd 28.8 33.7

SIV Enterprises Ltd - to 31 March 2019 4.6 0.0

Superclean Services W othorpe Ltd (Fire) 11.2 0.0 - to 31 March 2019 Taylor Shaw 34.7 24.4

Veolia (Amber Valley Refuse) 6.1 0.0

Veolia (Chesterfield Refuse) 17.5 8.3

Vinci Construction UK (Ashcroft & Portway) 31.7 30.8

Vinci plc (Ravensdale) - to 31 March 2019 29.9 0.0

W ealdon Leisure - from 1 August 2018 24.5 25.8

199 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

24. Subsequent Events

Covid-19 The outbreak of Covid-19, declared by the World Health Organisation as a “Global Pandemic” on 11 March 2020, has had, and continues to have, a significant impact on global financial markets. The majority of the countries in which the Fund invests have implemented severe restrictions on the movement of populations, with a resultant significant impact on economic activity. The impact of these restrictions, including the subsequent lifting of restrictions, will vary from country to country. The actions taken by the various governments and central banks around the world, including those of the United Kingdom, provide an indication of the potential severity of the downturn and post- recovery environment, which could be significantly different to past crises and take much longer. The Covid-19 outbreak has led to weaker GDP in many of the countries in which the Fund invests, and the impact is likely to differ significantly by country, and by industry and sector. It is not possible to predict the future trajectory of the Covid-19 outbreak, including the future impact on global financial markets, asset prices and bond yields.

The Fund’s basis of valuation for each class of financial investment is set out in greater detail in Note 15 to these accounts, and there have been no changes to the valuation techniques used in the year. A significant proportion of the Fund’s financial investments relate to Level 1 assets where there is a readily available daily bid market price, Level 2 assets where the fair value can be determined based on other market data or market prices, and cash deposits.

The remainder of the Fund’s financial investments relate to Level 3 assets, including unquoted private equity, infrastructure, private debt investments and indirect property assets. These assets are valued using the most recently reported net assets statement for that investment, adjusted for drawdowns and distributions to the final day of the accounting period, if the net assets statement is not produced to that date.

Level 3 assets also include the Fund’s direct property portfolio which is independently valued by Savills at market value on the final day of the accounting period, determined in accordance with the Royal Institution of Chartered Surveyors’ Valuation Standards. In their March 2020 Valuation Report, Savills noted that ‘‘market activity is being impacted in many sectors and at the valuation date we do not consider that we can rely upon previous market evidence to fully inform opinions of value. Indeed, the current response to Covid-19 means that we are faced with an unprecedented set of circumstances on which to base a judgement. Our valuations are therefore reported on the basis of ‘material valuation uncertainty’ as indicated in Global Valuation Technical and Performance Standards and Practice Guidance Applications VPS 3 and VPGA 10 of the Royal Institute of Chartered Surveyors (RICS) Red Book Global Standards, containing mandatory rules, best practice guidance and related commentary for all members undertaking asset valuations. Consequently, less certainty – and a higher degree of caution – should be attached to our valuations than would normally be the case. Given the unknown future impact that COVID-19 might have on the real estate market, we recommend that the valuation of these properties are kept under frequent review’’.

200 PENSION FUND ACCOUNTS NOTES TO THE PENSION FUND ACCOUNTS

The value of the Fund’s Level 3 assets at 31 March 2020 was £2,175.402m, accounting for 46.9% of total investment assets. The estimated impact of price risk in respect of Level 3 assets is ±7.5%, equating to £161.681m at 31 March 2020. Potential price changes are determined based on the observed historical volatility of asset class returns, for example, ‘risker’ assets such as equities display greater volatility than bonds.

201 AUDITOR’S OPINION – PENSION FUND ACCOUNTS

Independent Auditor’s Report to the Members of Derbyshire County Council

Report on the financial statements

Opinion on the financial statements of the Derbyshire Pension Fund W e have audited the financial statements of Derbyshire Pension Fund (‘the Pension Fund’) for the year ended 31 March 2020, which comprise the Fund Account, the Net Assets Statement, and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom 2019-20.

In our opinion the financial statements: • give a true and fair view of the financial transactions of Derbyshire Pension Fund during the year ended 31 March 2020, and the amount and disposition of the Pension Fund’s assets and liabilities as at 31 March 2020; and • have been properly prepared in accordance with the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom 2019-20.

Basis for opinion W e conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities section of our report. W e are independent of the Council, as administering authority for the Pension Fund, in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. W e believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Emphasis of Matter – effects of Covid-19 on the valuation of the Pension Fund’s Property Investment Assets W e draw attention to Note 5 of the financial statements, which describes the effects of the Covid-19 pandemic on the valuation of the Pension Fund’s property investment assets as at 31 March 2020. As disclosed at Note 5 these valuations have been reported by the valuers on the basis of ‘material valuation uncertainty’ in line with guidance from the Royal Institute of Chartered Surveyors. Our opinion is not modified in respect of this matter.

Conclusions relating to going concern W e have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where: • the Director of Finance & ICT’s use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or

202 AUDITOR’S OPINION – PENSION FUND ACCOUNTS

• the Director of Finance & ICT has not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the Pension Fund’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

Other information The Director of Finance & ICT is responsible for the other information. The other information comprises the information included in the Statement of Accounts, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

W e have nothing to report in this regard.

Responsibilities of the Director of Finance & ICT for the financial statements As explained more fully in the Statement of Responsibilities for the Statement of Accounts, the Director of Finance & ICT is responsible for the preparation of the Statement of Accounts, which includes the Pension Fund’s financial statements, in accordance with proper practices as set out in the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom 2019-20, and for being satisfied that they give a true and fair view. The Director of Finance & ICT is also responsible for such internal control as the Director of Finance & ICT determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

The Director of Finance & ICT is required to comply with the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom 2019-20 and prepare the financial statements on a going concern basis, unless the Council is informed of the intention for dissolution of the Pension Fund without transfer of services or function to another entity. The Director of Finance & ICT is responsible for assessing each year whether or not it is appropriate for the Pension Fund to prepare the accounts on the going concern basis and disclosing, as applicable, matters related to going concern.

203 AUDITOR’S OPINION – PENSION FUND ACCOUNTS

Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the Pension Fund’s financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Matters on which we are required to report by exception under the Code of Audit Practice W e are required by the Code of Audit Practice to report to you if: • we issue a report in the public interest under section 24 of the Local Audit and Accountability Act 2014; • we make a recommendation under section 24 of the Local Audit and Accountability Act 2014; or • we exercise any other special powers of the auditor under sections 28, 29 or 31 of the Local Audit and Accountability Act 2014.

W e have nothing to report in these respects.

Use of the audit report This report is made solely to the members of Derbyshire County Council, as a body and as administering authority for the Derbyshire Pension Fund, in accordance with part 5 of the Local Audit and Accountability Act 2014 and as set out in paragraph 44 of the Statement of Responsibilities of Auditors and Audited Bodies published by Public Sector Audit Appointments Limited. Our audit work has been undertaken so that we might state to the members of the Council those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the members of the Council, as a body, for our audit work, for this report, or for the opinions we have formed.

Cameron W addell Key Audit Partner For and on behalf of Mazars LLP Salvus House Aykley Heads DURHAM DH1 5TS

16 December 2020

204 GLOSSARY OF TERMS

AA rated corporate bonds Financial indicator of very good quality, low risk debt securities. These are assigned by credit rating agencies such as Moody's, Standard & Poor's and Fitch Ratings to have letter designations (such as AAA, B, CC). Account A group of expenditure items or balances with similar qualities will be summated into an ‘account’ balance such as an individual reserve account, or revenue expenditure account. Accounting Policies The Councils document outlining how it will account for all of its operations. Accounting Principles Commonly accepted set of concepts or assumptions that have to be followed when producing financial statements. Accounting Standard Statutory guidelines which explain how to treat financial activities in the financial statements. See International Financial Reporting Standards (IFRS). Accrual The accruals concept requires that the cost or benefit of a transaction is shown in the period to which the goods or services are received or provided, rather than when the cash is paid or received. Accruals Concept Requires operations of the Council to be reported in the financial statements at the point which they took place, rather than when the cash was paid or received. Accumulating Absences Types of leave which employees are entitled to each year; which if untaken in one financial year will be added to the entitlement for the following year. Acquired / Acquisition Operations or assets which have become the responsibility of the Council, such as through purchase, a Government reorganisation, donation or merger. Actuarial The estimation technique applied when estimating the liabilities to be recognised for defined benefit pension schemes in the financial statements of an organisation. Actuaries An actuary is a professional who deals with the financial impact of risk and uncertainty. Actuaries provide assessments of financial systems and balances. Amortisation The term used to describe the charge made for the cost of using intangible fixed assets. The charge for the year will represent the amount of economic benefits consumed for example wear and tear. Amortised Cost – Financial Instruments The valuation of a financial asset or liability based on repayments of principal, interest accrued at a constant rate and the difference between the initial amount recognised and the maturity amount. For financial assets this is adjusted by any loss allowance.

205 GLOSSARY OF TERMS

Amortised Cost – Other Non-Current Assets The cost of intangible assets reduced by the amount of amortisation charged to date. Annual Leave Yearly entitlement of paid time off for Council staff. Asset Register Listing of all property (for example land, buildings, furniture, infrastructure, software) owned by the Council. The register holds all financial information relating to the asset. Assets Right or other access to future economic benefits. Assets Held For Sale Non-Current Assets which meet the relevant criteria to be classified as held for sale. Assets Under Construction Assets which are in the process of being constructed and are not yet operational. Associates An entity (including partnerships) which is not a subsidiary or joint venture, where the Council has significant influence. Authorised For Issue The date which the financial statements have been certified by External Audit and signed the relevant Officers and Members of the Council. Balance Sheet Shows all balances including reserves, long-term debt, fixed and net current assets, together with summarised information on the fixed assets held. Balance Sheet Date The date at which the Council reports its financial statements. For Derbyshire County Council, this date is the 31 March. Bias Influence or direction. Billing Authorities Councils who are responsible for issuing Council Tax Invoices and collection of income from local residents. The relevant share of that income is then transferred to the Council. Borrowing Requirement The amount required to be loaned from Money Markets or other financial institutions or Councils in order to support capital expenditure. Business Rates Local property taxation issued to businesses, similar to Council Tax on residential properties. Also known as National Non Domestic Rates (NNDR). Cabinet Sub-committee of elected Councillors representing the functions and portfolios of the Council. Capital Assets which have a long term value (more than one year) to the Council such as Buildings.

206 GLOSSARY OF TERMS

Capital Adjustment Account Capital reserve largely comprising of resource applied to capital financing and is not available to the Council to support new investment. Capital Appreciation Increase in the worth of assets over time due to changes in market conditions or enhancements to the asset. Capital Costs Reflects the element of annual payment for PFI or Leased assets which is in relation to the reduction in the long term debt associated with the asset. Capital Expenditure Expenditure on the acquisition of, or enhancement to fixed assets. This cannot be merely to maintain the value of an existing asset. Capital Financing Requirement The Capital Financing Requirement measures the amount of capital spending that has not yet been financed by capital receipts, capital grants or contributions from revenue income. It is a measure of the underlying need to borrow for a capital purpose. Capital Grant Grant which is intended to fund capital expenditure. Capital Grants Unapplied Reserve Balance of capital grants received which is available to finance future capital expenditure. Capital Receipts Income received from the sale or utilisation of property, such as sale proceeds or rental income on finance leases. Capital Reserves Reserve balances held for capital purposes. Carrying Value The amount at which an asset is recognised after deducting any accumulated depreciation and impairment losses. Cash Flow Statement This consolidated statement summarises the inflows and outflows of cash arising from transactions with third parties for revenue and capital purposes. Cash Flows Monies received or paid either as cash or bank transactions. Cash inflow denotes money received, cash outflow denotes money paid. Chartered Institute of Public Finance And Accountancy (CIPFA) The main authority on accountancy and financial management for the public services in the UK. CIPFA Code A publication produced by the Chartered Institute of Public Finance and Accountancy (CIPFA) that provides comprehensive guidance on the content of a Council’s Statement of Accounts Collection Fund The fund maintained by authorities who have responsibility to bill Council Tax and Non-Domestic Rate payers (billing authorities).

207 GLOSSARY OF TERMS Collection Fund Adjustment Account Revenue reserve to represent the difference between the income received by a local authority in Council Tax and the amount attributable to them. Collection Fund Statements The statutory financial statements produced as part of the Statement of Accounts by authorities who have responsibility to bill Council Tax and Non- Domestic Rate payers (billing authorities). Community Assets Assets which are held for the benefit of the community where there is no determinable useful life. Comparative Year The previous year to that which is being reported. Component Accounting The concept that individual parts of an asset (such as land, building, roof, sheds) should be treated differently in the financial statements dependent on the expected useful life or value of those individual parts. The concept expects that some parts of an asset require repair or replacement sooner than others. Comprehensive Income And Expenditure Statement Financial Statement detailing the revenue operations of the Council. This represents the private sector equivalent of a Profit and Loss Statement. Condition A requirement which must be met for an asset or liability to be recognised by the Council. For example, a donation which can only be spent within a specific service area such as museums or to support children. Contingent Assets And Liabilities A possible asset or obligation that arises from past events whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Council. Contract Asset The Council’s right to receive consideration in exchange for goods or services that it has transferred to a service recipient where that right is conditional on something other than the passage of time (such as the Council’s future performance). Contract Liability The Council’s obligation to deliver goods or services to a service recipient for which it has already received consideration. Contributions Income received by the council which is not a grant, donation, fine, or in direct exchange for goods or services. Core Service Areas The services provided by the Council externally, such as education, highway maintenance and adult social care. Corporate And Democratic Core Costs associated with maintaining a democratic representation and management within the Council. For example Members Allowances and administrative costs associated with supporting elected Members.

208 GLOSSARY OF TERMS Council The Council comprises all of the democratically elected Councillors who represent the various electoral divisions. Council Tax Council Tax is a local taxation that is levied on dwellings within the local Council area, and funds all Council services. Credit A credit represents income to a revenue account. Credit Loss The difference between contractual amounts due to the Council and the amounts it expects to receive. Creditor Represents the amount that the Council owes other parties. Current Service Cost The current service cost is the increase in the value of the pension schemes future pension liabilities arising from the employees on-going membership of the pension scheme. Current Value IFRS13 introduces the concept of current value and defines it as the measurements that reflect the economic environment prevailing for a service or function the asset is supporting at the reporting date. Current value can be fair value, existing use value, existing use value – Social Housing and depreciable replacement cost. Current Year Entry A transaction which has occurred in the financial year being reported. Curtailments Materially reducing the expected years of future services of current employees or eliminating for a significant number of employees the accrual of defined benefits for some or all of their future services. Debit A debit represents expenditure against a revenue account. Debt Outstanding The remaining principal balance owed on a loans or investments. Debtors Represents the amounts owed to the Council. Equity Instrument A contract which evidences a residual interest in the assets of another entity after deducting all of its liabilities. Examples include shares and derivatives that give the Council the right to receive a fixed number of shares for a fixed amount of cash (or another financial asset) in an exchange which is expected to be favourable to the Council. Defined Benefit Scheme Also known as a Final Salary Scheme. Pension scheme arrangement where the benefits payable to the members are determined by the scheme rules. In most cases there is a compulsory members’ contribution but over and above this all costs of meeting the quoted benefits are the responsibility of the employer.

209 GLOSSARY OF TERMS

Defined Contribution Scheme Also known as a Money Purchase Scheme. Pension scheme arrangement where the employer’s liability is restricted to the amount that they contribute. Benefits payable to the members depend on the performance of the invested contributions of the members and the employer, the level of contributions invested, the charges deducted by the product provider and the annuity rate at retirement. De-Minimis Minimum level required. For example expenditure below the capital de-minimis is below the minimum level required to be treated as a capital expenditure item. Department For Education Central Government Department, responsible for education and children’s services in England. Depreciable Replacement Cost (DRC) DRC is a method of valuation that provides the current cost of replacing an asset with its Modern Equivalent Asset less deductions for all physical deterioration and all relevant forms of obsolescence and optimisation. Depreciation The term used to describe the charge made for the cost of using tangible fixed assets. The charge for the year will represent the amount of economic benefits consumed by, for example, wear and tear. Derecognition The process whereby a component is replaced to avoid double counting when no future economic benefits or service potential are expected from its use or upon disposal. Discount An allowance received through the early repayment of debt. Discounted Reflecting the equivalent value today of a payment or income made or due in the past or future. Discounted Cash Flow A method of analysing future cash flows, by removing the impact time has on the value of money, and producing an equivalent current value (present value). Discretionary Benefits Benefits given to employees which are not statutorily obliged. Disposal Operations or assets which have left the responsibility of the Council, such as through sale, a Government reorganisation, donation or merger Donated Assets Assets which have been acquired at below market cost. Dowry One off payment made as donation, contribution or pre-payment of an obligation. Earmarked Reserves Reserve balances which have been set aside for future spending in a specific area.

210 GLOSSARY OF TERMS

Economic Life The number of years the Council is expected to receive economic benefits to deliver services. Effective Rate The interest rate embedded within a contract or lease, allowing for regular annual payments and the time value of money. Employee A person who holds an office within the Council, but does not include a person who is an elected Councillor. Employee Benefits Monetary or other awards to employees of the Council in exchange for services provided. For example, pay, holidays, and pensions. Employee Costs The costs directly associated with employees, including but not exhaustively salaries and wages, National Insurance contributions and pension’s costs. Employer Contributions The payments made to an employee’s pension scheme by the Council. Enhancement Expenditure Expenditure which increases the value of an asset. Entity Something with a legal status such as the Council, a company, or an individual. Events After The Balance Sheet Date An event which occurs between 31 March and the date that the accounts are signed which would alter the conclusion reached by any reader of the accounts. Exceptional Items Material items that result from the ordinary activities of the Council, but to a value so significantly abnormal that is not expected to recur at that level. Existing Use Value (EUV) The value of an asset based on what it is currently being used for. For example, two identical buildings in construction and design may have different values where one is used as a school and another is used as offices. Exit Packages The payment made to an employee upon leaving the Council. Expenditure Payments made of goods or services. Fair Value The income that would be received on sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair Value Through Other Comprehensive Income (FVOCI) Measurement of a financial asset at fair value where any gain or loss on revaluation is recognised in other comprehensive income and expenditure and taken to the Financial Instrument Revaluation Reserve.

211 GLOSSARY OF TERMS

Fair Value Through Profit or Loss Measurement of a financial asset at fair value where any gain or loss on revaluation is recognised as a credit or charge to Surplus or Deficit on Provision of Services within the CIES. Finance Income Interest receipts. Finance Lease A lease that transfers substantially all of the risks and rewards of ownership of a fixed asset to the lessee. Financial Assets A type of financial instrument which gives the Council the right to receive future economic benefits. Financial Instruments An umbrella term to describe all financial services and trading with which the Council may operate, including loans, borrowings, bank accounts and debtors. Financial Instruments Adjustment Account Revenue reserve which records the timing differences between the rate at which gains and losses are recognised and the rate at which debits and credits are required to be made against Council tax. Financial Instruments Revaluation Reserve This reserve contains the cumulative gains and losses relating to the valuation of financial assets held at fair value through other comprehensive income. W hen the underlying financial assets are de-recognised any gains or losses held in this reserve are credited or expensed to the Surplus or Deficit on Provision of Services. Financial Liabilities A type of financial instrument that confers an obligation on the Council to transfer economic benefits under its control. Financial Statements Published document, consisting of the Balance Sheet, Comprehensive Income and Expenditure Statement, Movement in Reserves Statement, Cash Flow Statement and Notes to the Accounts. Financial Year The current year being reported upon running from 1 April to 31 March. Five Year Financial Plan The Councils Medium Term Financial Plan, setting out the financial projection for the Council over the coming 5 years. Fixed Assets See Non-Current Assets. Flexi-Time Time owed to employees who have worked above the contracted hours. Gain W here income exceeds expenditure. General Provisions Money set aside in the Balance Sheet where its future use is not known.

212 GLOSSARY OF TERMS

General Reserve The reserve held by the County Council for general purposes, i.e. against which there are no specific commitments. General Revenue Government Grants Grant income received from Central Government (or Government Department) which is not restricted in its use. Going Concern The going concern accounting concept assumes that the organisation will not significantly curtail the scale of its operation in the foreseeable future. Goods Or Services Supplies required by the Council to perform its operations. Examples of goods; paper, bricks or light bulbs, and services; electricity, petrol or agency staff. Grants Payment towards the cost of local authority services. These are either for particular purposes or services (specific grants) or in aid of local services generally (formula grant). Group Accounts W here a Council has a controlling interest in another organisation, group accounts have to be produced. These accounts report the financial position of all of the group entities. Hire Purchase A contract for the provision of an asset which becomes the property of the lessee at the end of the contract period. Historic Cost The cash paid in obtaining an asset in its current form. Inclusive of purchase price and enhancement expenditure. HM Revenue & Customs Her Majesty's Revenue and Customs is a non-ministerial department of the UK Government responsible for the collection of taxes, the payment of some forms of state support, and the administration of other regulatory regimes including the national minimum wage. HM Treasury Her Majesty's Treasury, sometimes referred to as the Exchequer, or more informally the Treasury, is the United Kingdom government department responsible for developing and executing the British government's public finance policy and economic policy. IFRIC International Financial Reporting Interpretation Committee. Immateriality Immateriality is an expression of the relative insignificance or unimportance of a particular matter in the context of the financial statements as a whole. Impairment Impairment is the amount by which the carrying amount of an asset exceeds its recoverable amount. Inception The point in time which something began such as a project, contract or lease.

213 GLOSSARY OF TERMS

Income Cash flows into the Council. Income From Service Recipients Consideration a party, that has contracted with the Council, has given in exchange for goods or services that are the output of the Council’s normal operating activites. Such a contract may be in writing, orally or in accordance with customary business practices. Income In Advance Income received before the point at which an obligation to receive it has occurred. Infrastructure A network and grouping of inalienable components, expenditure on which is only recoverable by continued use of the asset created i.e. there is no prospect of sale or alternative use. The inalienable components include carriageways, footways, cycle tracks, structures, street furniture, street lighting, traffic management systems and land. Intangible Asset Non-current assets which do not have physical form such as software. Interest Accrued Accrued interest is the interest on a bond or loan that has accumulated since the principal investment or since the previous coupon payment if there has been one already. Interest Payable The amount of interest due for payment within a financial year. Interest Rate The rate at which interest is calculated on a loan or investment. Interest Receivable The amount of interest due for receipt within a financial year. International Accounting Standards (IAS) Regulations outlining the method of accounting for activities, IAS’s are currently being replaced with International Financial Reporting Standards (IFRS’s) issued by the International Accounting Standards Board. International Financial Reporting Standards (IFRS) Regulations outlining the method of accounting for activities, issued by the International Accounting Standards Board. International Public Sector Accounting Standards (IPSAS) Public Sector regulations outlining the method of accounting for activities. Inventories Goods purchased in advance of their use which are held in store. Investment Property Assets held solely for the purposes of rental generation or for increasing the value pre-sale (capital appreciation) or both. Joint Venture An organisation which the Council has partial control and ownership, but decisions require the consent of all participants.

214 GLOSSARY OF TERMS

Lease Financial contract for the continuing use of an asset. Lease Interest The interest rate inherent within a lease allowing for regular rental payments and an adjustment for the time value of money. Lease Payments Regular payment made in exchange for the use of an asset. Leases A method of funding expenditure by payment over a defined period of time. Lessee The person or organisation that is using or occupying an asset under lease (tenant). Lessor The person or organisation that owns an asset under lease (landlord). Liabilities An obligation to transfer economic benefits. Current liabilities are payable within one year. Loans And Receivables Financial assets which are not quoted in an active market and have either a fixed or determinable payment. Loan Modification A change to the terms of an existing loan. Changes may include a reduction in the interest rate, an extension of the loan term, or a reduction in the principal balance. Loan Modification Gain/Loss An amount arising from adjusting the carrying value of a loan to reflect the cash flows under the renegotiated terms of the loan, but accruing interest at the rate specified in the original loan terms. Long Term Debtor Income due in more than 365 days of the balance sheet date. Long Term Liability Payment due in more than 365 days of the balance sheet date. Loss W here expenditure exceeds income. Loss Allowance A reduction to the value of financial assets for the expected credit losses relating to those assets. Materiality / Material Materiality is an expression of the relative significance or importance of a particular matter in the context of the financial statements as a whole. Maternity Leave Statutory time off due to pregnant women and new mothers. Members Elected Councillors responsible for the democratic leadership of the Council. Members Allowances Allowances paid to members in association with their roles and responsibilities.

215 GLOSSARY OF TERMS

Minimum Lease Payments The minimum which will be paid or received over the life of a lease agreement. Minimum Revenue Provision (MRP) A prudent amount of revenue set aside to contribute towards capital expenditure which has been financed by borrowing or credit arrangements. Misstatement An error whereby something was included in the accounts wrongly. Modern Equivalent Asset (MEA) The MEA should give the same service and performance as the existing asset, but should use modern materials and technology. Movement In Reserves Statement (MiRS) The statement detailing the movement in the reserves of the Council. Net Cost Of Services The direct cost of delivering the Councils services after allowing for specific income received by those services. Net Operating Expenditure The cost of operational items which are not direct services, such as disposing of the Councils assets, after allowing for specific income received. Net Realisable Value The estimated selling price of an asset in the ordinary course of operations less any completion costs and costs to make the sale, exchange or distribution. Non Distributed Costs The value of revenue operating expenditure that is not able to be apportioned to one of the authorities core service areas. Non-Accumulating Absences Types of leave an employee may take in a financial year, which if are not taken do not get added to the following year’s entitlement. For example Sick Leave. Non-Current Assets Assets that yield benefits to the Council for a period of more than one year, examples include land, buildings and vehicles. Non-Vesting An obligation which cannot be settled by a monetary payment. Notes To The Accounts A set of supplementary comments, tables and information which further explains the main Financial Statements. Obligation The requirement to transfer economic benefits. Operating Lease A lease where an asset is used only for a small proportion of its economic life. Operational The normal activities of the Council. Past Service Cost Past service cost is the change in the present value of defined benefit obligations caused by employee service in prior periods. Payment In Advance A payment made which is before the point of any obligation.

216 GLOSSARY OF TERMS

Pension Liabilities The cost, calculated by an Actuary, of providing the current members of a pension scheme with retirement benefits as set out in the pension scheme rules. Pensions Costs The benefits paid by the Council which are accrued during the period of employment and paid to ex-employees after retirement. PFI See Private Finance Initiative. PFI Credits The financial support provided to Local Authorities to part fund PFI capital projects. Pooled Investment Funds Adjustment Account This reserve contains the cumulative gains and losses related to pooled investment funds measured at FVPL as required by the statutory override effective for financial years 2018-19 to 2022-23. Premium A payment made in association with the early repayment of debt. Pre-Payments See payment in advance. Present Value See Discounted. Previous Year Adjustments These are material adjustments relating to prior year accounts that are reported in subsequent years and arise from changes in accounting policies or from the correction of fundamental errors. Principal The amount of repayment to a lender which relates to the reduction in the loan, rather than the interest paid on the loan. Private Finance Initiative (PFI) A Government initiative that enables, through the provision of financial support, Authorities to carry out capital projects through partnership with the private sector. Projected Unit Method This is a common actuarial funding method to value pension scheme liabilities. Property, Plant And Equipment Assets (PPE) Assets with a long Term value and physical substance such as buildings, land, IT equipment or vehicles. Provisions Potential costs that the Council may incur in the future because of something that happened in the past, which are likely or certain to be incurred and a reliable estimate can be made to the costs. Prudent A cautious approach to present the Financial Statements without significant risk of failure to achieve the assets presented.

217 GLOSSARY OF TERMS

Quoted Market Prices A method of determining the fair value of financial assets via prices quoted on an active market. Recognition The process upon which assets are deemed to belong to the Council ether by purchase, construction or other form of acquisition. Receivable The Council’s unconditional right to receive consideration in exchange for goods or services that it has transferred to a service recipient. Residual The remaining value in an asset at the end of a contract or lease. Retirement Benefits Remuneration package received by employees after their retirement from the Council. Retrospectively Changes made to previous years accounts to alter the treatment which has previously been reported. Revaluation Gain The increase to the fair value of an asset following a valuation. Revaluation Reserve This reserve contains revaluation gains on assets recognised since 1 April 2007 only, the date of its formal implementation. Revenue The cost associated with providing Council services. Revenue Expenditure Expenditure which is not capital. Revenue Expenditure Funded From Capital Under Statute (REFCUS) This is expenditure that is classified as capital although it does not result in the creation of a fixed asset. Revenue Grant Grant which is not capital. Risk The chance of an asset not coming to fruition or a liability being greater than anticipated. Royal Institute Or Chartered Surveyors (RICS) An international organisation who represent everything professional and ethical in land, property and construction. Salaries And W ages Payments made to employees in exchange for service worked at the Council. Service Concession Arrangements Arrangements which involve the supply and maintenance of assets and service delivery. Service Costs Reflects the element of annual payment for PFI or Leased assets which is in relation to services provided within the contract.

218 GLOSSARY OF TERMS

Service Expenditure Reporting Code of Practice (SERCOP) CIPFA guidelines on reporting revenue expenditure. Service Level Agreements Contract of service. Short Term Less than 365 days from the balance sheet date. Short Term Benefits Employee benefits earned and consumed during employment. Significant A measure of materiality where the value is deemed to be almost all of the total value in question. Soft Loans Low interest rate loans. Spot Yields A calculation of the projected return on bonds if held to maturity. Staff See employee. Statute Set out in legislation. Straight Line Basis The method of calculation of depreciation to allocate an equal amount of depreciation each year over an asset’s useful life. Support Services Indirect costs of providing Council services including HR, Finance, Legal and Property Maintenance. Surplus Arises when income exceeds expenditure or when expenditure is less than available budget. Surplus Assets Assets which are no longer in operation. Tangible Physical, can be touched. Tenant The person or organisation that is occupying an asset under lease. Termination Benefits Employee benefits paid upon termination of employment such as redundancy. The Code CIPFA guidelines on accounting within Local Government. Transactions Individual items of income or expenditure. Treasury Management Utilisation of cash flows through investments and loans. Unidentified Income Income received by the Council where the reason for the income is unknown.

219 GLOSSARY OF TERMS

Unusable Balances which are not available to support future spending. Usable Balances which are available to support future spending. Useful Life The period with which an asset is expected to be useful to the Council in its current state. Value Added Tax National taxation charged on goods and services. Vesting Obligation due which can be paid in cash. W ork In Progress The fair value of incomplete contracts for goods and services which are to be charged to external customers.

220 CONTACT INFORMATION

If you require any further assistance

E-mail : contact.centre@ derbyshire.gov.uk

Phone : 01629 533190

221 ANNUAL GOVERNANCE STATEMENT

Annual Governance Statement

2019-20

222 ANNUAL GOVERNANCE STATEMENT

Contents

Section Page

Introduction and the Purpose 3 of the Governance Framework

Derbyshire County Council’s 5 Governance Framework

Scope of Responsibility 6

The Annual Governance 7 Statement 2019-20

Action Plan 23

223 ANNUAL GOVERNANCE STATEMENT

Introduction and the Purpose of the Governance Framework

Defining Corporate Governance

Corporate governance includes the systems, processes and values by which councils operate and through which they engage with, and are held accountable to, their communities and stakeholders.

Good corporate governance underpins credibility and confidence in public services. Derbyshire County Council is committed to effective corporate governance and has undertaken a self-assessment against the Framework issued by the Chartered Institute of Public Finance and Accountancy (CIPFA) and the Society of Local Authority Chief Executives (SOLACE), entitled “Delivering Good Governance in Local Government (2016)"

The Framework defines the seven core principles, each supported by sub- principles which should underpin the governance framework of the Council. Acting in the public interest requires a commitment to and effective arrangements for:- ➢ Behaving with integrity, demonstrating strong commitment to ethical values and respecting the rules of law; ➢ Ensuring openness and comprehensive stakeholder engagement; ➢ Defining outcomes in terms of sustainable economic, social and environmental benefits; ➢ Determining the interventions necessary to optimise the achievement of the intended outcomes; ➢ Developing the Council's capacity, including the capability of its leadership and the individuals within it; ➢ Managing risks and performance through robust internal control and strong public financial management; ➢ Implementing good practices in transparency, reporting, and audit to deliver effective accountability.

The Council’s Structure

The Council is comprised of 64 Elected Members who are democratically accountable to residents of their electoral division. Members follow a Code of Conduct to ensure high standards in the way they undertake their duties. The Cabinet consists of the Leader of the Council and six Members. The Cabinet is responsible for guiding the Council in the formulation of its corporate plan of objectives and key priorities. W ithin the policy framework, budgets and major plans approved by the full Council, the Cabinet has executive responsibility for the implementation of the Council’s key goals and objectives.

The Governance, Ethics and Standards Committee promotes and maintains high standards, assists Members in observing the Code of Conduct and advises the Council on matters relating to the Code. The Appointments and Conditions of Service Committee approves corporate employment policies,

224 ANNUAL GOVERNANCE STATEMENT determines terms and conditions of service, and has a specific role in the appointment and disciplinary procedure for certain officers.

The Council also operates four Improvement and Scrutiny Committees which support the work of the Cabinet and the Council as a whole. These allow citizens to have a greater say in Council matters by holding inquiries in public into matters of local concern. These lead to reports and recommendations which advise the Cabinet and the Council as a whole on its policies, budget and service delivery, and other public bodies. The Improvement and Scrutiny Committees also monitor the decisions of the Cabinet. They can ‘call-in’ a decision which has been made by the Executive but not yet implemented.

All Members meet together as the Council; meetings are generally open for the public to attend except where confidential matters are being discussed. The full Council decides the overall policy framework and sets the budget each year.

The Audit Committee independently contributes to the Council's process of ensuring internal control systems are maintained and in doing so is responsible for approving and monitoring progress of the annual Audit Plan. In addition, it considers matters referred to the Committee by the Council’s external auditor, approves the Annual Statement of Accounts and the Annual Governance Statement.

The Council’s structure in 2019/20, the year to which this Statement relates to is documented below:-

Cabinet Audit Improvement & Committee Scrutiny Committees

COUNCIL

Meets five times a year

Governance Appointments Pensions and Regulatory Investments and Appeals Ethics and & Conditions Committee Committees Standards of Service Committee Committee

225 ANNUAL GOVERNANCE STATEMENT

Derbyshire County Council’s Governance Framework

The governance framework comprises the systems, processes and values by which the Council is directed and controlled and the activities through which it accounts to, engages with and leads the community. It enables the Authority to monitor the achievement of its strategic objectives and to consider whether those objectives have led to the delivery of appropriate, cost-effective services.

The system of internal control is a significant part of that framework and is designed to manage risk to a reasonable level. It cannot eliminate all risk of failure to achieve policies, aims and objectives and can therefore only provide reasonable and not absolute assurance of effectiveness. The system of internal control is based on an ongoing process designed to identify and prioritise the risks to the achievement of the Council’s policies, aims and objectives, to evaluate the likelihood of those risks being realised and the impact should they be realised, and to manage them effectively, efficiently and economically.

The governance framework has been in place at the County Council for the year ended 31 March 2020 and up to the date of the Statement of Accounts being certified by the Director of Finance & ICT.

226 ANNUAL GOVERNANCE STATEMENT

Scope of Responsibility

The Council has a duty under the Local Government Act 1999 to make arrangements to secure continuous improvement in the way in which its functions are exercised and is responsible for ensuring that its business is conducted in accordance with the law and relevant standards, that public money is safeguarded, properly accounted for and used economically, efficiently and effectively.

In discharging this overall responsibility, the Council is responsible for putting in place proper arrangements for the governance of its affairs and facilitating the effective exercise of its functions, including arrangements for the management of risk.

The Council has developed an approach to corporate governance to ensure that it is consistent with the CIPFA/SOLACE Framework Delivering Good Governance in Local Government and demonstrates its commitment to corporate governance as “good corporate governance underpins credibility and confidence in our public services”.

This Statement explains how the Council demonstrates compliance with the Framework and also meets the requirements of Regulation 6 of the Accounts and Audit Regulations 2015 in relation to the publication of an Annual Governance Statement.

227 ANNUAL GOVERNANCE STATEMENT

The Annual Governance Statement 2019-20

During the 2019-20 financial year, events noted in the previous AGS came into effect as the Council had undertaken significant reviews of its Constitution including the Financial Regulations and Standing Orders relating to Contracts. As a result revised Financial Regulations and Standing Orders were implemented from 1 April 2019, with the remainder of the Constitution becoming operational from 27 May 2019. W hilst these updates were considered to significantly strengthen the overall robustness and integrity of the governance framework, these can take time to become embedded.

There has also been some progress in respect of the Council’s Corporate Governance Group which is now chaired by the Head of Paid Service, with representatives from each Department as well as the Director of Legal & Democratic Services, Director of Finance & ICT, Director of Organisation Development & Policy and Assistant Director of Finance (Audit). A number of meetings were held during 2019-20 and the Group has been developing a Local Code of Corporate Governance. In addition, the Group has looked to schedule reviews of key governance policies, procedures and documents to coincide with Committee Meetings.

The Risk Management Strategy was approved by Cabinet on 16 March 2020. This is intended to assist the Council in demonstrating good corporate governance by reducing risk, stimulating performance throughout the Council, enhancing services, promoting Value for Money and improving leadership, transparency and social accountability. This is another significant step towards improving governance and the Strategy includes an implementation plan to ensure that risk management is embedded across the Council.

During the year, the Council’s Audit Services Unit was deemed to conform in all material aspects to the Public Sector Internal Audit Standards (PSIAS) following an independent review by external consultants Cipfa C.Co. The Standards recognise that a professional, independent and objective internal audit service is one of the key elements of good governance.

The Corporate Peer Challenge for the Council took place in October 2018 which identified that its approach to governance appeared to be sound. The resulting report was considered and approved by Cabinet on 31 January 2019 before it was published. At this meeting Cabinet approved plans to develop a clear action plan, to address recommendations set out in the report alongside priority actions identified in the Enterprising Council Strategy and to receive future reports on progress on a six-monthly basis. Although progress against performance related actions are being reported to Corporate Management Team in respect of the Council Plan all recommendations have not yet been fully implemented. In addition, reports on progress have not been taken to Cabinet on a six-monthly basis.

228 ANNUAL GOVERNANCE STATEMENT

Coronavirus

Possibly the most significant risk to the Council and its governance arrangements was not realised until March 2020 when the impact of coronavirus became apparent. W hilst this was not an issue for the majority of the year under review, the effect of the virus has radically changed the Council’s ability to make decisions and deliver services in the usual way.

Immediate Impacts

There was an immediate impact on decision making processes in March 2020, which saw many meetings cancelled as the Council was not able to hold these in accordance with regulations, and technology needed to be deployed in order that meetings could be facilitated. This had been resolved by May 2020 and virtual meetings have been held since that time.

The existence of an adequate governance framework ensured that the decision-making processes were robust and the Council could continue its core functions.

Despite the impact of coronavirus, the Council submitted the certified pre-audit Statement of Accounts on 8 June 2020, just eight days after the deadline in a normal year. The majority of staff were working at home during the period when the accounts were being prepared. This demonstrates that the Council has a robust and embedded framework which enables the production of the Statement of Accounts in challenging circumstances. The Council’s systems and IT infrastructure have proved to be effective to ensure that staff were able, and can continue, to work from home in the short to medium term.

Prior to coronavirus, the Council was in a relatively sound financial position and effectively plans and manages its resources and investments. Therefore it had the capacity and capability to deal with the crisis. However, it has been recognised that the Council needs to consider and adapt its financial planning process and is seeking to utilise a financial forecasting model to support this.

As the Council reacted to the developing situation, it had to adapt quickly which consumed time and resources that otherwise would have been deployed elsewhere. The Council has provided support to individuals, businesses and organisations within the community across Derbyshire to help them through the crisis. During this time, although efforts were made to ensure that changes to systems were reviewed to maintain effective control, an assumption has to be made that all proposed changes were notified through the correct channels and were considered. This may present a future risk and will be monitored.

229 ANNUAL GOVERNANCE STATEMENT

The longer-term outlook remains unclear at this time. W hilst an initial surge of coronavirus cases passed and the severe restrictions imposed by the first lockdown have been eased and lifted, England is now subject to a less restrictive second lockdown. Unless there is an effective vaccine or cure, life and business will not be able to return to normal which means that in the short to medium term protective measures will need to continue to be in place to limit transmission of the virus. This will, in turn, continue to impact on the Council’s frontline services and office working environments, the impact of which on vulnerable and/or isolated service users may not be apparent for some time in the future. Inevitably there is likely to be an impact on the Council’s performance as a result of coronavirus, and therefore it will be essential that as the Council moves into the recovery phase it looks at those services which have been adversely affected and how to support their effective recovery.

The Council has recognised the impact that the virus has had on staff and undertook a survey as part of Our Spirit to gauge opinion and determine employee wellbeing. W hilst this confirmed that the majority of respondents were able to work effectively from home and had adapted to the circumstances, which supports the opinion that the Council’s IT systems were effective, this has been undertaken after a relatively short period of time. In the medium to long term, the impact of coronavirus on staff either as a result of actually having caught the virus and being extremely unwell, losing a relative or close friend, feeling isolated, or from having unsuitable working arrangements will have an impact. Similarly as staff return to offices as they reopen, this may also affect wellbeing, especially where individuals have become accustomed to the flexibility of working from home with no structure or commuting required. The recovery phase will undoubtedly be a difficult period of transition.

230 ANNUAL GOVERNANCE STATEMENT

As part of this process, an assessment has been made of the Council’s performance against each of the seven core principles using the following criteria:-

Category Definition Good The governance framework is effective and fit for purpose, although some minor weaknesses and improvements may have been identified. Adequate W hilst the governance arrangements are generally effective, there are gaps within the framework which need to be addressed. Should these issued remain unaddressed, there is an increased risk that the Council may be exposed to reputational risk. Inadequate Significant weaknesses have been identified in the governance arrangements which expose the Council to reputational risk. Ineffective The governance arrangements are considered to be deficient as weaknesses have been identified in a number of key areas rendering the overall framework ineffective and leaving the Council open to a high risk of error/abuse and significant reputational risk/damage.

Arising from this assessment of governance arrangements an Action Plan has been developed and is attached. Detailed actions and dates for completion will be determined to address each area for improvement which will be reported to the Audit Committee who will, in turn, monitor progress.

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The Effectiveness of the Council’s Governance Arrangements

The Annual Governance Statement summarises the findings of the review of the Council’s existing governance arrangements.

The review examined the Council’s position against the CIPFA/SOLACE Framework Delivering Good Governance in Local Government which defines the seven core principles, each supported by sub-principles which underpin the governance framework of the Council.

A. Behaving with integrity, demonstrating strong commitment to ethical values, and respecting the rule of law

The Council is accountable not only for how much it spends, but also for how it uses the resources under its stewardship. This includes accountability for outputs, both positive and negative, and for the outcomes which have been achieved. In addition, the Council has an overarching responsibility to serve the public interest in adhering to the requirements of legislation and government policies. It is essential that, as a whole, it can demonstrate the appropriateness of all its actions and have mechanisms in place to encourage and enforce adherence to ethical values and to respect the rule of law.

Principle A Overall Assessment Behaving with integrity, demonstrating ADEQUATE strong commitment to ethical values and respecting the rule of law W hat the ➢ The Council Plan sets out the Authority’s key priorities; Council does ➢ The Constitution details the roles of the Cabinet, well Committees, full Council, Executive Directors and Statutory Officers and has been significantly updated in the previous year; ➢ Codes of Conduct define the standards of behaviour for Members and officers; ➢ The Authority operates an Equality and Diversity Policy, W histleblowing The Confidential Reporting Code and Complaints Procedures; ➢ An Anti-Fraud and Anti-Corruption Strategy, Fraud Response Plan and Anti-Money Laundering Policy demonstrate the Council’s stance against fraud; ➢ The Monitoring Officer is responsible for ensuring the lawfulness of decisions taken by Council, Cabinet, Committees and officers; ➢ Embedded arrangements for the delivery of Improvement and Scrutiny; ➢ Financial Management Arrangements conform to the Cipfa Statement on the Role of the Chief Financial Officer in Local Government (2016);

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➢ The Governance, Ethics and Standards Committee monitors and reviews the operation of the Constitution and the ethical framework and has conducted a major review during the previous year; ➢ Role profiles have been recently updated and agreed for Members and together with Personal Development Plans inform Member Development programmes; ➢ Clear channels of communication are in place for all sections of the community and stakeholders; ➢ Embedded, recently reviewed Financial Regulations and Standing Orders, Procurement policies and practices. Areas for ➢ The Council should continually review how it best Improvement protects its vulnerable residents and takes on board learning from all relevant reviews whether they are Derbyshire focussed or not, e.g. safeguarding reviews, governance reviews, national research into child sexual exploitation etc.; ➢ Council Plan and Delivery Plan published but progress against delivery plan requires improvement; ➢ The Council’s Corporate Governance Group, chaired by the Head of Paid Service, would operate more effectively if its profile was raised, membership expanded and its activities better resourced. Such actions are underway; ➢ The Employee Code of Conduct was last updated in 2015. The requirements of the Code should be reflected in other policies and not be seen in isolation; ➢ Officers’ declarations of interests and gifts and hospitality are not consistently made and recorded; ➢ The W histleblowing The Confidential Reporting Code will be reviewed and communicated more widely; ➢ Embed ethical standards following receipt of recent report from the Committee on Standards in Public Life; ➢ The Anti-Fraud arrangements could be more widely communicated and supported by training. ➢ Review of the Derbyshire Partnership Toolkit should be completed.

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B. Ensuring openness and comprehensive stakeholder engagement

The Council is run for the public good and therefore should ensure openness in its activities. Clear, trusted channels of communication and consultation should be used to engage effectively with all groups of stakeholders, such as individual citizens and service users, as well as institutional stakeholders.

Principle B Overall Assessment Ensuring openness and comprehensive GOOD stakeholder engagement W hat the ➢ The Assistant Director of Finance (Audit) produces an Council does Annual Report which is considered by Audit well Committee, highlights both significant areas of good practice and those where improvements can be made. This Report includes the annual internal audit opinion which concludes on the overall adequacy and effectiveness of the Council’s framework of governance, risk management and control; ➢ The Authority operates a partnership protocol, toolkit and database with specific requirements of partnership working defined in Financial Regulations; ➢ Certain partnership arrangements are subject to annual review by Audit Services; ➢ The Council publishes Member decisions on the website; ➢ The Council engages with the citizens of Derbyshire; ➢ The Council consults stakeholders as part of the decision making process where appropriate; ➢ The Council fulfils its responsibilities on the Duty to Cooperate; ➢ Equality Impact Assessments are undertaken and considered in decision making; ➢ A Communications Strategy is in place; ➢ The Council consults with citizens, trade unions and business ratepayers when setting its budget; ➢ The Council has an “Enterprising Council” Strategy and approach designed to ensure services meet the needs of users, utilising the best delivery vehicle in each circumstance. ➢ The Council has an online Committee Management System to improve access to councillors and democracy; Areas for ➢ More active use of parish/town councils and community Improvement groups could be considered; ➢ Partnership working arrangements are redesigned using the Thriving Communities approach to create strategic partnership engagement to deliver shared outcomes.

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C. Defining outcomes in terms of sustainable economic, social, and environmental benefits

The long-term nature and impact of the Council’s responsibilities mean that it should define and plan outcomes and that these should be sustainable. Decisions should further the Authority’s purpose, contribute to intended benefits and outcomes, and remain within the limits of authority and resources. Input from all groups of stakeholders, including employee groups, Citizens’ Panel, 50+ Forum, BME Forum, Local Area Fora, School Councils, service user groups and institutional stakeholders, is vital to the success of this process and in balancing competing demands when determining priorities for the finite resources available.

Principle C Overall Assessment Defining outcomes in term s of sustainable ADEQUATE economic, social and environmental benefits W hat the ➢ The Council Plan outlines the Council’s strategy and Council does vision; well ➢ Departmental and Service Plans are developed which are consistent with the overarching Council Plan and incorporate a range of performance measures; ➢ Progress against a range of targets is monitored; ➢ The Authority has in place an effective risk management framework; ➢ The Strategic Risk Register is subject to regular review; ➢ Capital investment is structured and in line with the Investment Strategy. Areas for ➢ Ensure that decisions are taken with regard to, or based Improvement on the longer term view; ➢ More emphasis could be placed on measuring and monitoring longer term outcomes as opposed to outputs; ➢ Ensure key equipment and processes to support business continuity planning are effectively maintained; ➢ A social value approach is in place. The Council should continue to develop and embed social value to ensure that the economic, environmental and social benefits are realised for Derbyshire when procuring services; ➢ Need to develop a comprehensive Asset Management Strategy.

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D. Determining the interventions necessary to optimise the achievement of the intended outcomes

The Council achieves its intended outcomes by providing a mixture of legal, regulatory, and practical interventions. Determining the right mix of these courses of action is a critically important strategic choice that the Council has to make to ensure intended outcomes are achieved. Robust decision-making mechanisms are required to ensure that defined outcomes can be achieved in a way that provides the best trade-off between the various types of resource inputs while still enabling effective and efficient operations. Decisions made need to be reviewed continually to ensure that achievement of outcomes is optimised.

Principle D Overall Assessment Determining the interventions necessary to ADEQUATE optimise the achievement of the intended outcomes W hat the ➢ Financial Regulations and Standing Orders in relation to Council does Contracts are subject to periodic review by officers and well the Audit Committee; ➢ Decision making protocols are in place; ➢ Social value considerations are included in decisions where appropriate; ➢ Financial, Procurement and ICT Strategies are in place; ➢ Member Report considerations include financial, legal, prevention of crime and disorder, equality and diversity, human resources, environmental, health, social value, property and transport considerations; ➢ The Council has Improvement and Scrutiny Committees in place. Areas for ➢ Development of consistent and effective business cases; Improvement ➢ The Council could develop a more proactive approach to the use of collective intelligence to guide decision making, rather than data; ➢ Revised Strategy in relation to HR is in place which will be useful to ensure consistent council wide approach and guide future investment in skills. This needs to be fully embedded; ➢ Development of a robust post implementation review process for major projects; ➢ Review of officer scheme of delegation to optimise achievement of outcomes.

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E. Developing the entity’s capacity, including the capability of its leadership and the individuals within it

The Authority needs appropriate structures and leadership, as well as people with the right skills, appropriate qualifications and mind-set, to operate efficiently and effectively and achieve their intended outcomes within the specified periods. The Council must ensure that it has both the capacity to fulfil its own Plans and objectives and to make certain that there are policies in place to guarantee that its management has the operational capacity for the organisation as a whole. Because both individuals and the environment in which the Authority operates will change over time, there will be a continuous need to develop its capacity as well as the skills and experience of the leadership of individual staff members. The Council’s leadership is strengthened by the participation of people with many different types of backgrounds, reflecting the structure and diversity of communities.

Principle E Overall Assessment Developing the entity’s capacity, including ADEQUATE the capability of its leadership and the individuals within it W hat the ➢ Members and officers work together to deliver a common Council does purpose with clearly defined functions and roles; well ➢ The arrangements for Member training and development are reviewed through the Member Development W orking Group; ➢ Staff development is supported through the provision of generic and specific skills training including supporting the maintenance of professional standards and qualification training including use of the apprenticeship levy; ➢ Senior Leadership and Leadership Forums are embedded; ➢ The Council operates a MyPlan process to identify training and development opportunities. Areas for ➢ W hilst there are areas of good practice relating to staff Improvement inductions and MyPlans there are opportunities to develop these processes; ➢ W orkforce planning, succession planning, mentoring leadership training and management development is not formalised and monitored within the Council. It is inconsistent with no Council wide approach in place; ➢ Consistent training of new staff in the IT systems they are expected to use, alongside refresher training for existing staff to ensure effective use of systems.

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F. Managing risks and performance through robust internal control and strong public financial management

The Council needs to ensure that the organisations and governance structures that it oversees have implemented, and can sustain, an effective performance management system which facilitates effective and efficient delivery of planned services. Risk management and internal control are important and integral parts of a performance management system and crucial to the achievement of outcomes. Risk should be considered and addressed as part of all decision making activities.

A strong system of financial management is essential for the implementation of policies and the achievement of intended outcomes, as it will enforce financial discipline, strategic allocation of resources, efficient service delivery, and accountability. It is also essential that a culture and structure for scrutiny is in place as a key part of accountable decision making, policy making and review. A positive working culture that accepts, promotes and encourages constructive challenge is critical to successful scrutiny and successful delivery. Importantly, this culture does not happen automatically, it requires repeated public commitment from those in authority.

Principle F Overall Assessment Managing risks and performance through GOOD robust internal control and strong public financial management W hat the ➢ The Audit Committee operates in accordance with Council does prescribed terms of reference and holds Statutory well Officers to account. The Committee receives, approves and monitors the Audit Plans for internal and external audit; ➢ The Audit Committee monitors the effectiveness of the Authority’s risk management arrangements; ➢ Audit Committee Members are provided with relevant training; ➢ The effectiveness of the governance framework including the system of internal control is reviewed annually; ➢ Audit Services review the effectiveness of the Authority’s internal controls; ➢ The Council has a Risk Management Strategy; ➢ The Strategic Risk Register is subject to regular review and project specific risk logs are in place for major projects and partnerships which are subject to ongoing review; ➢ Emerging risks are identified by the reviews and from ongoing Audit work; ➢ Departmental risk registers are in place and regularly reviewed by management teams;

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➢ Strong and effective information governance arrangements; ➢ The Council has been proactive in its approach to the General Data Protection Regulation (GDPR) and dealing with data breaches. ➢ The Council has a Medium Term Financial Plan and effective Budget Monitoring Procedures endorsed in the recent Corporate Peer Review by the Local Government Association; ➢ The Scrutiny Committees scrutinise decisions made or actions taken in connection with the discharge of any of the Council’s functions; ➢ The standards of behaviour and conduct are detailed in the Protocol for Elected Member Behaviour and Conduct; ➢ W histleblowing The Confidential Reporting Code enables individuals or organisations to disclose information about malpractice whilst offering protection; ➢ Performance management is well embedded at a Departmental level; ➢ The Council has established a working group to consider cyber security risks; ➢ Independence of Internal Audit and unrestricted access to all Members and officers as appropriate; ➢ Ensuring compliance with the principles set out in the Cipfa guidance on the Role of the Chief Financial Officer in public service organisations. Areas for ➢ Data Protection arrangements will require continual Improvement monitoring and review to ensure compliance with the General Data Protection Regulation. ➢ Cyber security threats will require ongoing monitoring and development of appropriate responses which is a key work stream for the cyber security working group; ➢ The APEX performance system requires further development to utilise it to its full capacity to integrate performance and financial reporting.

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G. Implementing good practices in transparency, reporting, and audit to deliver effective accountability

Accountability is about ensuring that those making decisions and delivering services are answerable for them. Effective accountability is concerned not only with reporting on actions completed, but also ensuring that stakeholders are able to understand and respond as the organisation plans and carries out its activities in a transparent manner. Both external and internal audit contribute to effective accountability.

Principle G Overall Assessment Implementing good practices in GOOD transparency, reporting and audit to deliver effective accountability W hat the ➢ The Constitution defines how the Council operates and Council does the decision making processes to ensure the Council is well efficient, transparent and accountable to local people; ➢ Council, Departmental and Service Plans set out objectives and include performance targets; ➢ Council, Cabinet and Member meetings are open to the public and minutes are published on the website through the online Committee Management System to aid transparency of the democratic process; ➢ Financial Statements are produced and published on a consistent and timely basis; ➢ Departmental Financial Schemes of Delegation supplement the Council’s Financial Regulations and Standing Orders relating to Contracts; ➢ The Assistant Director of Finance (Audit) produces their Annual Report which is considered by Audit Committee and highlights both significant areas of good practice and those where improvements can be made; ➢ Partnership working arrangements are established; ➢ The Council routinely publishes data and meets the requirements of the Local Government Transparency Code; ➢ Schemes of Delegation were reviewed during 2018-19. Areas for ➢ Continue to improve robust systems for property Improvement valuations building on the enhancements completed during recent years; ➢ Continue to action the recommendations of LGA Peer Review to aid future improvement; ➢ Continue to review the Constitution to ensure it remains fit for purpose to deliver effective accountability; ➢ Develop systems and protocols to support and monitor partnership working.

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The Annual Governance Statement & Opinion

W e have been advised on the implications of the results of the review of the effectiveness of the governance framework by the Audit Committee and it is our opinion that the Council’s corporate governance framework is generally fit for purpose and can be considered to be adequate. However, it is recognised that there are areas which could be improved and the Council has a plan to address weaknesses and ensure continuous improvement of the system is in place.

W e propose over the coming year to take steps to address those opportunities for improvement highlighted above so as to further enhance our governance arrangements. W e are satisfied that these steps will address the need for improvements which were identified in our review of effectiveness and will monitor their implementation and operation as part of our next annual review.

Councillor Barry Lewis Emma Alexander Leader of the Council Executive Director for 30 November 2020 Commissioning, Communities and Policy and Head of Paid Service 30 November 2020

On behalf of Derbyshire County Council

241 ANNUAL GOVERNANCE STATEMENT Action Plan - Areas for Improvement

Principle Area for Improvement Responsible Officer

Principle A ➢ The Council should continually review how it best protects its Service Director - Commissioning, Behaving with vulnerable residents and takes on board learning from all relevant Safeguarding & Performance integrity, reviews whether they are Derbyshire focussed or not, e.g. demonstrating safeguarding reviews, governance reviews, national research into strong child sexual exploitation etc. commitment to ➢ Council Plan and Delivery Plan published but progress against Director of Organisation Development ethical values delivery plan requires improvement. and Policy and respecting ➢ The Council’s Corporate Governance Group, chaired by the Head of Director of Finance & ICT the rule of law Paid Service, would operate more effectively if its profile was raised, membership expanded and its activities better resourced. Such actions are underway. ➢ The Employee Code of Conduct was last updated in 2015. The Director of Organisation Development requirements of the Code should be reflected in other policies and not and Policy be seen in isolation. ➢ Officers’ declarations of interests and gifts and hospitality are not Director of Legal and Democratic consistently made and recorded. Services ➢ The W histleblowing The Confidential Reporting Code will be reviewed Director of Legal and Democratic and communicated more widely. Services ➢ Embed ethical standards following receipt of recent report from the Director of Legal and Democratic Committee on Standards in Public Life. Services ➢ The Anti-Fraud arrangements could be more widely communicated Director of Finance & ICT and supported by training. ➢ Review of the Derbyshire Partnership Toolkit should be completed. Director of Organisation Development and Policy

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Principle Area for Improvement Responsible Officer ➢ More active use of parish/town councils and community groups could Assistant Director - Resources and Principle B be considered. Improvement Ensuring ➢ openness and Partnership working arrangements are redesigned using the Thriving Director of Organisation Development comprehensive Communities approach to create strategic partnership engagement to and Policy stakeholder deliver shared outcomes. engagement

Principle C ➢ Ensure that decisions are taken with regard to, or based on the longer Director of Legal and Democratic Defining term view. Services outcomes in ➢ More emphasis could be placed on measuring and monitoring longer Director of Legal and Democratic terms of term outcomes as opposed to outputs. Services sustainable ➢ Ensure key equipment and processes to support business continuity Director of Organisation Development economic, planning are effectively maintained. and Policy social and ➢ A social value approach is in place. The Council should continue to Director of Finance & ICT environmental develop and embed social value to ensure that the economic, benefits environmental and social benefits are realised for Derbyshire when procuring services. ➢ Need to develop a comprehensive Asset Management Strategy. Assistant Director – Resources and Improvement working with Directors of Highways, Property and Finance & ICT

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Principle Area for Improvement Responsible Officer ➢ Development of consistent and effective business cases. Director of Finance & ICT Principle D ➢ The Council could develop a more proactive approach to the use of Director of Finance & ICT Determining collective intelligence to guide decision making, rather than data. the ➢ Revised Strategy in relation to HR is in place which will be useful to Director of Organisation Development interventions ensure consistent council wide approach and guide future investment and Policy necessary to in skills. This needs to be fully embedded. optimise the ➢ Development of a robust post implementation review process for Assistant Director – Resources and achievement of major projects. Improvement the intended ➢ Review of officer scheme of delegation to optimise achievement of Director of Legal and Democratic outcomes outcomes. Services Principle E ➢ W hilst there are areas of good practice relating to staff inductions and Director of Organisation Development Developing the MyPlans there are opportunities to develop these processes. and Policy entity’s ➢ W orkforce planning, succession planning, mentoring leadership Director of Organisation Development capacity, training and management development is not formalised and and Policy including the monitored within the Council. It is inconsistent with no Council wide capability of its approach in place. leadership and ➢ Consistent training of new staff in the IT systems they are expected to Director of Finance & ICT the individuals use, alongside refresher training for existing staff to ensure effective within it use of systems.

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Principle Area for Improvement Responsible Officer Principle F ➢ Data Protection arrangements will require continual monitoring and Data Protection Officer Managing risks review to ensure compliance with the General Data Protection and Regulation. performance through robust ➢ Cyber security threats will require ongoing monitoring and Director of Finance & ICT internal control development of appropriate responses which is a key work stream for and strong the cyber security working group. public financial ➢ The APEX performance system requires further development to utilise Director of Organisation Development management it to its full capacity to integrate performance and financial reporting. and Policy Principle G ➢ Continue to improve robust systems for property valuations building Director of Property Implementing on the enhancements completed during recent years. good practices ➢ Continue to action the recommendations of LGA Peer Review to aid Director of Organisation Development in future improvement. and Policy transparency, ➢ Continue to review the Constitution to ensure it remains fit for purpose Director of Legal and Democratic reporting and to deliver effective accountability. Services audit to deliver ➢ Develop systems and protocols to support and monitor partnership Director of Organisation Development effective working. and Policy accountability

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